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The term ‘tax code split’ is where the nanny’s tax-free allowance is split proportionately between their employers so that all parties avoid paying basic rate tax on nanny’s gross pay.
If both employees agree a gross salary than a tax code split is not necessary, as all parties’ total costs will be protected, and each employer will be paying the correct deductions.
If a net salary has been agreed by each family, then nanny’s tax-free allowance can be split between their employers, as a way of ensuring that each family benefits from a fair total cost by allocating a proportional share of the nanny’s tax-free allowance. This is providing the nanny gives their consent for their tax code to be split between their employers.
From July 2017, HMRC has brought in a new ruling called Dynamic Tax Coding. This now means that nanny’s tax code will be calculated based on what they have earned in the current tax year so far, with what their estimated earnings will be for the remainder of the current tax year and tax code then proportionately split between each employer.
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