London, England -- (SBWire) -- 04/11/2012 --“Parents face tax bill over nannies” (Sunday Times), “Taxman out to catch the family nanny” (Daily Telegraph), Tax crackdown on parents who pay the nanny in cash” (Financial Times) – these are the headlines that grabbed our attention last week following a decision by the Government to provide more money for HMRC investigations targeted at households who employ a nanny as part of a crackdown on “evasion, avoidance and fraud”. This follows evidence that suggests than many parents are not declaring their nanny’s salary or topping up the declared salary with untaxed cash payments. HMRC estimate that a fifth of nannies surveyed in a report were not having the relevant nanny tax deductions made.
In nearly all circumstances it is a legal requirement for nannies to be paid through the PAYE system and employees need to be declared to HMRC if their earnings are more than £107 per week (regardless of whether tax is payable at that level). There are very rare circumstances when nannies can be correctly treated as being self-employed.
It is not totally clear how HMRC will tackle this issue at present but they have advised that when a nanny starts a new job it often becomes evident that there is a gap when deductions of PAYE and NI have not been made and they will therefore investigate such cases with more rigour.
In 2013, Real Time Information, (RTI), is being introduced, whereby each time an employee is paid, the relevant nanny PAYE and National Insurance information will be sent directly to HMRC rather than just submitting a form P35 at the end of the financial year. Also, employees will need to be registered with HMRC even if their earnings are below the lower earnings level for national insurance of £107 per week. This is to make it easier to implement Universal Credits from October 2013, as HMRC will require up to date payroll information to process any benefits. HMRC will therefore have much more information available to tackle tax avoidance.
If an employer is caught evading PAYE for their nanny, the new regime will mean that they will need to repay all the under declared tax and national insurance and in addition will have to pay a 100% fine in addition to the current penalty regime for late payment and filing of returns. Employers who as professionals should be aware of the rules, such as accountants and lawyers, could also be prosecuted. Taking the stance that a nanny is self-employed is unlikely to be a defence and HMRC will look to collect the additional PAYE and NI from the employer rather than the nanny.
Are you concerned about what you have just read above? If so, please feel free to contact Taxing Nannies and have a confidential chat. We can help you get your nanny payroll affairs sorted out and backdate where required. We offer a highly professional service and we will deal with your affairs in a pragmatic, sympathetic manner.
We would suggest that this is done as soon as possible to mitigate any penalties or interest for late payments.
HRMC Clampdown on Nannies Tax Avoidance - Parents Beware
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