Taxation of Domestic Workers
Information is relevant on the moment of publication (January 2018)
Domestic workers, like nannies, gardeners, cooks, maids or chauffeurs employed at home may be treated as employees of the home owner. This means that the home owner must register as an employer and deduct Income tax and National Insurance contributions from the money paid to employees. The home owners may also have to pay employer’s NIC.
When you employ staff, you should make sure that these people have legal rights to be in the UK and perform employment duties. You would be liable for a substantial penalty if you fail to verify an immigration status of your employee. The government has recently introduced checks that must be made on all new employees to safeguard you from employing someone illegally.
For further information about immigration status in the UK you can visit immigration sections of our web site using the following link.
Before registering as an employer, one has to decide whether the people that work for him in his home are his employees. There is no need to operate PAYE if they're self-employed. It is worth mentioning that employed or self-employed status is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.
In most cases, employment status is straightforward. As a general rule, a worker is:
The sections below contain a series of further indications that will help you determine a worker’s employment status. You can also use HMRC’s online Employment Status Indicator tool - see 'Asking HMRC for a decision' below.
Indications that a worker is your employee
An individual is likely to be employed, if most of the following statements apply to them.
It is also necessary to determine whether the person works under a contract of service (employees) or under a contract for services (self-employed, independent contractor). For tax and NICs purposes, there is no statutory definition of a contract of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters.
From 2003 the service company legislation IR35 was extended to Domestic Workers which enabled domestic workers to be engaged through intermediaries, normally service companies, which were used to achieve large savings in tax and National Insurance contributions (NICs) compared with direct employment.
As an employer you must send PAYE returns electronically to HMRC each time you pay your employees as part of your routine payroll processes. These returns must include details of all employees' pay, tax and deductions.
As an employer you must operate PAYE on the payments made to your employees if their earnings reach the NICs Lower Earnings Limit (LEL).
You must use the employee's tax code and NICs category letter to work out how much Income Tax and NICs to deduct from the employee's pay and how much employer's Class 1 NICs you owe.
You must make payments to HMRC by the 19th of each month (22nd of each month if paying electronically). You may be able to send the due amounts every quarter if your average monthly payments are likely to be less than £1,500.
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For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email