Understanding your pay and taxes as a care worker

Understanding your pay and taxes as a care worker

As well as having lots of helpful guidance on our website for people in straightforward employment or self-employment scenarios, we also have help and support for people in more complex roles. This can often be the case for care workers.

If you are a care worker and are looking for more information, this article provides a rundown of some of the different guidance pages on our freshly updated website, where you might find the answers to your questions on tax, National Insurance and other matters such as those to do with employment law or benefits.

If you work through a domiciliary care agency 

If you are a domiciliary care worker, you can face some challenges with your pay and taxes, due to your contractual arrangements and travel patterns. On our dedicated page for care workers, we set out some of the national minimum wage (NMW), tax and universal credit issues related to zero hours contracts and varying work rotas, and explain what to do if you are affected by them.

If you are hired directly by a disabled person (Personal Assistant)

If you work directly for an individual who needs personal care, often as their Personal Assistant (PA), the nature of the care you provide usually means you should be employed by them. An employment arrangement requires your employer to set up a Pay As You Earn (PAYE) scheme to handle your tax and National Insurance deductions. They must also adhere to employment laws for employees, including minimum wage, holiday pay, and pension contributions.

The person employing you is responsible for fulfilling these obligations. LITRG provides resources to help ‘care and support’ employers understand and navigate these responsibilities, which may also be useful for employees to better understand what to expect.

If you find care work via an online platform

If you use an online care platform to find work doing things like running errands, gardening, cleaning, or doing something informal or occasional for someone who needs care, then you are probably receiving payment ‘gross’ on the basis that you are self-employed for tax purposes.

Because HMRC ask certain online platforms to send them information about the people who sell services through them and the amount of money they make, it is important you are on top of your taxes from the outset, so that you don’t accidentally make any mistakes. The starting point is that the money you receive from such jobs is usually taxable, even if you receive cash as payment or do it as a side job. If the ‘gross’ amount before any fees, commissions or other expenses, comes in at £1,000 or less , then it may not be taxable due to something called the trading allowance. We summarise the situation, including the reporting rules for online platforms in our guidance for ‘gig’ workers. 

If you find live-in care work via an introductory agency 

Many introductory agencies have sprung up to facilitate the introduction of self-employed care work to disabled people. They often focus on facilitating self-employed live-in care work. But self-employment is a not choice. A series of legal principles or tests have been developed to work out whether you are self-employed or employed. These should be considered carefully by the person ultimately needing your services, not you the worker, or an intermediary like an introductory agency.

Although we know that there are a lot of self-employed carers out there, in our view and as set out in our tailored factsheet on employment status for the care sector, many are unlikely to be genuinely self-employed if the status tests are applied to the facts correctly. This is therefore ‘false’ self-employment.

If you are in false self-employment, your wages are not subject to PAYE, as they should be. Instead, you are likely to be declaring your income and paying tax and NICs through the Self Assessment system.

PAYE is supposed to remove the burden of individual workers having to declare their earnings to HMRC via the Self Assessment system. We know that people can easily fall into non-compliance when trying to navigate the complex Self Assessment system and this can have longstanding ramifications.

If you are being treated as self-employed incorrectly for tax purposes, then you may be being treated incorrectly for employment law purposes too and may be missing out on some rights. You may also be in more of a vulnerable position in terms of working in a private house for someone that may not hold employer liability insurance etc.

We know carers/PAs sometimes want to be self-employed because they think they will be better off. But this can sometimes be an oversimplification as we explain in the ‘mythbusters’ section of our factsheet.

If you operate through your own limited company

Some care workers or PAs choose to operate through their own limited company. Limited companies are cheap and easy to set up. But working through your own limited company is very different from just being an employee or self-employed – for example you can’t just treat the money you make through your limited company, as your own. There are strict administrative and compliance requirements. You therefore need to consider all the factors before deciding to set one up. Our guidance on limited companies sets out the main things to think about. 

If you set up a Community Interest Company (CIC)

We are aware that some care workers provide services through Community Interest Companies (CICs). These may be run out of a local ‘hub’, providing for instance art or music therapy sessions,  work mentoring and support services, companionship, social activities, and health and wellness initiatives. CIC’s are subject to the same tax obligations as regular limited companies, including having to pay corporation tax on their profits. Find out more on our limited company page.

CICs are designed to serve community purposes. Because of this there are also specific reporting requirements for Companies House and the CIC Regulator, which you can read about on GOV.UK. 

Further information

If you are genuinely self-employed, our self-employment guide is full of lots of helpful information that will stand you in good stead for managing your tax position.

If you think you are in false self-employment, read our dedicated page to find out more and what to do.

We strongly recommend you seek independent professional advice to understand the full implications of working through a limited company or CIC. You can find guidance on choosing a tax adviser in our getting help section.

If you are working through an arrangement that is not captured here, or you are confused or uncertain about the way your pay and taxes are being dealt with, please let us know, as this will be very useful to feed into our work.