If you are employing staff on a professional basis (basically anything other than au pairs), you will be subject to certain legal obligations, governed by employment and tax law in the UK. These include
- Drawing up a Contract of employment
- Registering as an employer
- Setting up and operating a PAYE scheme
- Filing an employer’s annual tax return.
Contract of Employment
Legally, employees must be issued with what are called written particulars of employment within 2 months of commencement of employment. The written particulars of employment are:
- Names of employer and employee
- Title of the job
- The date when employment began
- Annual/Monthly or Weekly salary and interval when paid
- Hours of work
- Over time requirements and method of payment
- Sickness entitlement
- Holiday entitlement
- Length of Notice required on both sides to terminate the contract
- Place of work
- Details of disciplinary and grievance procedures
For more information, please visit the DTI website
Register with the Inland Revenue
If you employ a nanny in the UK and you pay her more than £102 per week (tax year 2011/2012) you are required by law to register as an employer with the Inland Revenue and operate a PAYE scheme.
These obligations also apply:
- If your nanny earns less than £102 per week in your employment but more than £136 in total (e.g. if she has two part-time jobs)
- In short-term employment (i.e. a week or longer)
- To any employment taking place in the UK - irrespective of the country of origin of the nanny or employer.
Failure to register as an employer if you are paying your nanny above the weekly threshold is an offence, which can potentially lead to heavy penalties and career-damaging publicity.
More information can be found on the inland revenue website
When you employ someone in the UK, you must pay regular income tax and National Insurance Contributions (NICs) on their behalf. You must also pay employer's NIC - this is not part of the gross cost and should be taken into consideration when you are calculating the overall cost of employing someone. As you are classed as a small employer you only have to pay these liabilities to the Inland Revenue on a quarterly basis. All quarterly tax and NI payments are due to be paid to the Inland Revenue by the 19th of the month following the end of each calendar quarter. For new employers the first payment will only be due once your new PAYE scheme has been set up by the Inland Revenue, and you will not be penalized if this is after the due date for any of the first three quarters of the tax year (starting in April).
Your new employee needs to provide you with a P45, which summarizes pay and tax received so far in the current tax year, so that you can prepare the P11 (deduction working sheet) or complete a P46 to send to the Inland Revenue. If your new employee does not have a National Insurance number you will be required to apply for this. Whenever an employee leaves your employment you are required by law to provide them with a form P45. This enables the next employer to deduct the correct amount of income tax. For more comprehensive information on this subject, please refer to the Inland Revenue website.
Filing employer’s annual tax return
At the end of every tax year, you need to
- Send a return to the Inland Revenue office showing details of your employee’s total pay, tax and National Insurance contributions.
- Send details to the Inland Revenue about certain expenses you have paid to your employee, or benefits you have provided them with.
- Give your employee a certificate showing their pay, tax and National Insurance contributions for the year.
- Give your employee a copy of the information you have given the Inland Revenue office about their expenses payments and benefits provided.
The above set of regulations and obligations can be a daunting prospect, especially if this is new to you. Luckily, there is an alternative. There are a few companies specializing in pay roll services for domestic staff.
We recommend NannyTax who are able to take care of all your pay roll needs, as well as formulate a written statement of particulars, not to mention giving you guidance about the whole process.