Nanny Benefits in Kind
When many families, who are or will become an employer, decide to hire a nanny, housekeeper or any domestic staff, they might be wondering what type of benefits they can give their employees or if they might get any tax advantage of providing benefits to their nanny or housekeeper.
There will be families already familiar with the term benefits-in-kind, (also known as BIKs), but if you are not, we will explain to you what they are and how you can give these benefits to your employees.
HMRC’s broad definition of a benefit-in-kind is anything of monetary value you provide to your employees that is not ‘wholly, exclusively and necessary to perform the duties specified in the work contract”. For example, if you give a vehicle to your nanny for picking up and dropping off the children from school and afternoon activities, HMRC would consider the car essential to their work.
That vehicle would not be considered a BIK unless the nanny made extensive private use of the car. However, if you give a car to a nanny or housekeeper who does not need to travel to work or use it necessarily for work duties, the car would be considered a BIK.
Different rules apply to different types of benefits. They fall into two categories: taxable and tax-free. HMRC has published basic BIK guidelines about these two categories on their website.
Why is it important to know if the benefit is tax-free?
As we have mentioned, some benefits might incur taxes, so if you are planning to offer a package of benefits to your nanny or housekeeper, it is essential that you know if it’s tax-free, that is, whether you need to include them in your employee’s payslip to declare tax or not.
Any family that hires domestic workers will become an employer. Some families will look into offering packages to make their job offer more attractive and hire employees looking for long-term employment. This is why there are different options to reward your employees for loyalty to their employment; one of the most popular options is BIKs, also known as fringe benefits.
They can be offered in addition to the basic pay or as a part of an “integral package”, which can be tailored to the necessities or preferences of the nanny, housekeeper or domestic private staff.
Benefits-in-kind process
Before giving any benefits to your nanny, housekeeper or domestic private staff, we recommend that the employer check into which category the benefits will fall. This is because, as we mentioned before, they might not be tax-free, so you will need to declare tax for the benefits. If you are not sure whether the benefit you are planning to give to your employee is tax-free or not, our specialist assistants are one call away to answer all your questions on 020 7183 6795.
Suppose you are already using our payroll service or planning on doing so. In that case, our consultants will help you declare the benefits in kind in your annual report to the HMRC, so you won’t need to worry about the process or if you are declaring them correctly.
Tax-free benefits
HMRC provide an extensive list of tax-free benefits, including:
- Accommodation, supplies and services in your home
- Free or subsidised meals
- Meal vouchers
- Expenses of providing a pension
- Medical treatment to help employees return to work
- Health screening and medical check-ups
- Cost of nurseries and playschemes
- Childcare vouchers
- Other employer-supported childcare
- Certain living accommodation
- Payments towards additional household costs where employees work at home
- Incidental overnight expenses
- Disabled people’s cost of travel between home and work
- Certain retraining costs
- Employer-funded or employer-reimbursed training
- Long-service awards
- Suggestion schemes
- Financial benefit awards
- Goodwill entertainment
- Car, motorcycle and bicycle parking
- Certain gifts
- Work to home travel, as provided when an employee works late or when sharing arrangements are disrupted
- Work buses and subsidies for public buses
- Sports facilities
- Counselling
- Welfare counselling
- Mobile phones
- Bicycles and cycling safety equipment
Taxable benefits
HMRC provide a brief list of taxable BIKs, including:
- Company cars for personal use
- Fuel for a company car for the employee’s personal use
- Accommodation provided rent-free or below market rent that is not essential for the employee’s job role
- Clothing allowance that is not essential for the employee’s job role
- Private medical insurance
- School fees for employees’ children
- Interest-free or cheap loans to employees over £10,000
- Holidays or holiday vouchers
H2: How much tax do I need to pay on taxable benefits?
From the perspective of the employee who is receiving the BIK, to know how much tax they need to pay, they will need to apply their personal income tax rate band 20% for the basic rate, 40% for the higher rate or 45% for additional rate) to the taxable benefit, defined by the HMRC as the cash equivalent. For example, if your employer is spending £700 per year to provide you with private medical insurance, you will need to pay 20% of £700 as income tax on the benefit.
From the perspective of the employer providing BIKs to their nanny, housekeeper or domestic private staff, they are obliged to pay tax in the form of Employer’s NI at a rate of 13.8%. However, don’t forget that this might only apply to taxable benefits. If you are not sure if the benefit is taxable or not, our payroll assistants will advise you before you offer any benefit that might incur taxes to your employees.
It is also important to highlight that the cost of providing BIKs is an allowable tax-deductible expense, which means it can be taken off profits for corporation tax purposes. Therefore, employers could give the option of offering BIKs as a more affordable way to reward their domestic private staff than through their salary.
It is vital that the employee knows that if they need to pay income tax on a BIK, they will not have to pay NI on top of that too, so that they can have a tax saving from the BIK. However, to ensure that the BIK does not attract Employee’s NI, the benefit should not be given in cash or vouchers, because this could create confusion and could be considered an earning (for example).
Would you like to know more about Benefits-in-Kind? Little Ones payroll assistants can provide a guide regarding the Benefits of the kind scheme. For more information regarding the explanation of Benefits in Kind, call us on 020 7183 6795.
Nanny Payroll is free for our clients with new recruits
If you have recently hired or are considering hiring a nanny, housekeeper or au pair through Little Ones, our monthly payroll service is completely free for 6 months from your new employee’s start date. Please note that our weekly payroll service has a cost of £76 per quarter. Please call Little Ones Nanny Payroll team for more information.
Little Ones is an internationally established London nanny agency with two offices: Fitzrovia and Kings Cross.
Our years of experience, dedication and integrity with Payroll services have developed an extensive and constantly expanding network of satisfied clients whose needs and requirements we understand and accommodate to the highest standard.
Little Ones’ team of professional and committed consultants understand the importance of making the best possible match between families and nannies. We know that every family has individual needs and requirements, just as every nanny has unique qualities to offer, and we won’t stop until we are confident that the perfect match has been made.
If you are just starting the process, or are still trying to find the right Nanny, Housekeeper or Au Pair for your family and would like to know more about our Payroll service, please call Little Ones Nanny Payroll team to talk with our expert consultants on 020 7183 6795.