Why can’t my nanny be self-employed?
Under UK law, you become an employer when you take on a nanny and that brings with it certain responsibilities, one of which is to maintain payroll records for your nanny’s pay. In practice, this means submitting figures to HMRC every pay day and making deductions from pay.
Some nannies will suggest that they pay their own tax and National Insurance. Unfortunately, in 99% of cases this just isn’t an option, since HMRC clearly categorises this type of work as employment, not self-employment. HMRC places the responsibility firmly on you as an employer, regardless of your nanny’s circumstances elsewhere. By law, you must be registered as an employer and make quarterly tax and NI payments.
It’s a very important distinction; an employment situation attracts Employer’s National Insurance, whereas payments to a self-employed person don’t. This means that the taxman loses out considerably when employers treat employees as if they were self-employed. That’s just one of the reasons why HMRC rules are so very strict on the matter.
Beware! Individuals and their employers may have to reimburse HMRC with unpaid tax and penalties, and could lose entitlement to benefits, if their employment status is wrong.
Very, very rarely a genuine case of self-employment may arise. For example, if a nanny were to specialise in settling newborns and therefore flit from job to job. If you think your case may be exceptional, you must use the employment status indicator tool on the HMRC website to determine the nanny’s true status. The tool is anonymous and provides a useful insight into the difference between employment and self-employment.
For example, a self-employed person will typically (but not always) be paid per job of work, whereas an employee will normally be paid an hourly rate or salary.
For a definitive answer, use HMRC’s Employment Status Indicator tool here: www.hmrc.gov.uk/calcs/esi.htm
What if my nanny is already self-employed?
Your nanny may already be registered and paying tax and National Insurance correctly via Self-Assessment.
This will be the case if the nanny also works as a self-employed childminder in their own home, or runs a separate, unrelated business. It does not mean that the relationship with you is one of self-employment. It simply means that there is more than one source of income: employment and self-employment.
It is also quite possible that your nanny has been treating income from previous nannying jobs as self-employment. If the previous employers have not made deductions at source, the nanny will have no choice but to declare the income via Self-Assessment (or report the employers for non-compliance). This does not change the position; every employer is required in law to deduct tax and NI from the nanny’s pay.
It is worth mentioning the other implications of employment status. An employee is entitled to paid annual leave, pension, Statutory Sick Pay, Statutory Maternity Pay and Statutory Redundancy Pay, and has a vast amount of employment protection legislation at their disposal. A self-employed person has no entitlements in law whatsoever.