Employing and paying for a nanny with another family

If two families employ a nanny to look after all their children - i.e. a nannyshare - it is advisable for each family to set up their own separate PAYE scheme as this will result in a considerable saving in National Insurance Contributions (NICs) for each party - without adversely affecting the nanny.

Usually, the first (or main) employer applies the nanny's full personal tax-free allowance (currently £89 per week for a single person on a standard tax code) as well as the lower rate (10%) tax band to a part of the wage.  The second employer then applies the basic rate of income tax (currently 22% of gross income) to all earnings in their employment.
But many domestic employers agree a net salary with their nanny.  This means that if a first (or main) employer is using all of their nanny's personal tax free allowance, the second employer, paying an agreed net, will end up paying substantially more tax, having to pay basic rate tax (at 22%) from the first penny nanny earns.

Therefore, all employers are advised to agree their nanny's pay on a gross basis.  Even if a nanny takes home proportionally more from her first employer than her second, she should be made aware that she is being taxed correctly, if unequally, over both sources of income.  Neither employer is out of pocket when paying an agreed gross wage.

Agreeing a net wage is highly inadvisable as it makes an employer liable to potentially unlimited amounts of top-up tax and NI whenever the rates for these are increased, and severely disadvantages a second employer when the first employer is already applying a nanny's full tax code.

Even when a fixed net wage has been agreed it is better for one employer to use their nanny's entire tax code and to privately agree an adjustment in total cost between the first and second employer, to ensure that neither is unfairly out of pocket, when paying the share of both tax and NI, rather than to apply to the tax office to split her tax code.  It is possible for two employers to split their nanny's tax code between them so that each family has the benefit of part of nanny's personal tax-free allowance.  But tax code splits are an inadvisable way of balancing pay between two jobs, as they require the prior consent of both employers and their nanny, can involve considerable delays to be authorised by the Inland Revenue and are normally not applicable retrospectively.

Nannytax is the UK's original and leading payroll service for parents and their nannies. For a fixed annual fee, Nannytax not only ensures that your responsibilities as an employer are met; we are also the only domestic payroll service to offer our clients comprehensive employment law support as an integral part of our service.