By Merryn Somerset Webb
Do you employ a nanny? A gardener? Or a carer? If so, it’s time you got to grips with the pensions market. Rules are being rolled out that require all employers to set up and pay into a new pension scheme for their staff. It doesn’t matter if “staff” means one nanny or a long-term carer – everyone over 22 and earning more than £10,000 a year gets a pension. And they don’t come cheap.
The rules will add around £500 to the cost of a nanny in the first year, says the Financial Times, but as the level of obligatory contributions rises, that number will hit “more than £1,100 by 2018”. The various costs involved will add another £100 or so.
The temptation here, as HMRC knows, will be for employers to shift into the black market and pay their nannies in cash; to divide salaries, paying just under £10,000 officially, and the rest in cash; or to encourage their staff to opt out of their pension. All are illegal and will be closely watched by HMRC: they have tough targets in place for cutting tax evasion and this is an obvious place to start.
So if you need to set up a new pension scheme for a single employee (use your PAYE reference number to find out when your staging date is at thepensionsregulator.gov.uk), where do you start? With Nest, the National Employment Savings Trust. This, says the Norland Nannies agency, is the “only really practical scheme” available. They have a point – go to nestpensions.org.uk and you will be led through every stage of set up so you won’t get it wrong.
However, Nest isn’t necessarily the cheapest or best deal out there (for your employee), so you might look at a few others too – NOW: Pensions is high quality and low cost too.
Finally, ask your nanny what she (or he) wants: perhaps she already knows how she wants to invest. The one thing you don’t want to do is nothing: there is a fixed fine of £400 for those who miss the staging date, but, says the FT, it can quickly escalate to £10,000.
• Finally, a note for MoneyWeek readers who are keen eBay users. The government is about to crack down on anyone considered to be a trader rather than an occasional seller of second-hand goods and unwanted gifts.
HMRC has the right to demand websites hand over records of transactions, and has recently sent out 14,000 letters warning people that they may not be paying the tax due on their activities.
What makes the difference between a business and a hobby is pretty obvious really. Is your main aim to make a profit? Do you sell in volume? Do you modify goods between buying and selling? Have you borrowed money to buy the things you sell?
Answer “yes” to any of these and you might want to contact HMRC before they contact you.