Taxation of Domestic Workers
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:
- employed if they work and don’t have the risks of running a business
- self-employed if they’re in business on their own account and are responsible for the success or failure of their business
The sections below contain a series of further indications that will help you determine a worker’s employment status.
Indications that a worker is your employee
An individual is likely to be employed, if most of the following statements apply to them.
- They can be told what work to do, as well as how, where and when to do it.
- They have to do their work themselves.
- They can be moved from task to task.
- They’re contracted to work a set number of hours.
- They get a regular wage or salary, even if there is no work available.
- They have benefits such as paid leave or a pension as part of their contract.
- They may receive overtime pay or bonus payments.
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.
If the test shows that domestic workers employed in home are employees, you (as employer) must:
- check if the person can work in the UK
- have employers’ liability insurance
- register with HMRC as an employer and operate PAYE (Pay as you earn) scheme in real time
- set up and run payroll, or pay someone else to do it on your behalf (even if you pay the employee in cash)
- pay statutory benefits, for example maternity pay and sick pay
- deduct and pay the employee’s Income Tax and National Insurance contributions
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).
For the tax year 2021-22, the LEL is:
- £120 a week
- £520 a month
- £6240 a year
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.
Also, anyone you employ must:
- have an employment contract
- be given payslips
- not work more than the maximum hours allowed per week
- be paid at least the National Minimum Wage
If they meet the eligibility requirements, they are also entitled to things like:
- Statutory Maternity Pay
- Statutory Sick Pay
- paid holiday
- redundancy pay
- a workplace pension
Our company provides payroll bureau services and you can find further information about it following the link.
Services we offer
We are pleased to be able to offer the following taxation based services:
- A General tax consultation and/or specific tax advice;
- Tax planning for your general situation or for a specific transaction;
- Registration for National Insurance and Unique Tax Reference numbers;
- Preparation and submission of annual self-assessment returns;
- Preparation and submission of return for overseas landlords;
- Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.
All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.
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.