Employing a carer

Employed or self-employed

A proper understanding of whether your personal assistant (PA) is employed or self-employed is very important. If you employ your PA, you will have to deduct tax and National Insurance contributions (NIC) on any payments made to them under the PAYE system, whereas if they are self-employed, they are responsible for paying tax and NIC to HMRC themselves.

It is your responsibility to correctly decide whether your PA is employed or self-employed. You need to do this for any PA that works for you, including ones that you are matched with via an introductory agency (even if the agency calls them self-employed).

The only time you do not need to worry about deciding the status of your PA is where the Local Authority provides them, they supply their services through their own limited company or through an agency that they are both paid and ‘managed’ by – in these cases, the responsibility for deciding their status lies elsewhere.

We have some website guidance for prospective employers that will help you understand the rules around employment status for tax purposes (whether your PA is employed or self-employed).

We have written a more detailed factsheet for those taking on a PA, to explain the technical and difficult rules around employment status for tax purposes, as we know this is something that causes real difficulty.

Risks of choosing to treat your PA as self-employed

Whilst most people no doubt prefer to treat their PA as self-employed (as this means less cost/responsibilities/paperwork etc.), self-employment is a question of fact, not choice. If you choose to treat your PA as self-employed without checking whether this is correct, you are potentially being non-compliant with tax law.

You may find it useful to read the employment law case of Chatfeild-Roberts v Phillips & Universal Aunts Limited in which a live-in carer was found to be an employee of the client, even though they viewed her as self-employed. It is useful for two reasons:

1. it shows the application of the employment status tests to a PA situation, and
2. it confirms that a court will always consider how a contractual relationship actually works in practice rather than what is written down or agreed between the parties.

It is worth noting that the live-in carer’s tax position will not automatically be impacted by this employment law decision. This is because a person’s employment status for tax law and employment law can be different (although the status of a person for employment law might be treated as an indication of their status for tax purposes). However, on the facts, it is possible that HMRC or a tax tribunal could decide that someone in a position like this live-in carer would be an employee for tax purposes.

You should also be aware that self-employed arrangements without any of the safeguards or framework that go with employment carry inherent risks – for both you and your PA – and not just in terms of tax non-compliance. For example, in a self-employed situation, there may be a failure to carry out the requisite right to work checks or to get employer liability insurance, which can leave both parties exposed.

What you need to do if you employ your PA

There are a number of things that you need to think about if employ a PA, such as registering as an employer with HMRC, operating a Pay As You Earn scheme, arranging a workplace pension and paying at least the minimum wage.

You can do all this yourself or you can use an adviser or payroll provider to help you. Using an adviser or payroll provider helps you maintain control but means you do not need to worry about running a payroll or calculating tax and NIC etc., as a third party will do it for you.

Your Independent Living adviser/centre or the direct payments team in your Local Authority (or other part of government) may be able to advise you where else you can get help to deal with your payroll. There is a variety of support available ranging from advice and information to practical help. Some will even be able to point you in the direction of in-house payroll support services, or a local provider that they have outsourced their support to. You should check with your funding provider whether the extra costs that come with being an employer (including payroll support and employer liability insurance) are covered in any government funding that you receive.

Payroll services will almost always have a charge attached to them and it is of note that Value Added Tax (VAT) is chargeable on payroll services, even payroll services provided by charities to disabled employers. Find out more about using a payroll provider in our guidance.

Registering with HMRC as a care and support employer

You must register as an employer with HMRC by phone.

Care and support employers cannot use the Register as an Employer tool on GOV.UK,   even though step 3 of the online process gives you an opportunity to check a box that you are 'an individual employing a carer or support worker in your home'. Making that selection tells you that you must register as an employer by phone.

In terms of who should register as the employer, in most cases this will be the person receiving care as they will be the person making decisions about employing a PA, who has practical control and direction of the PA, and actually communicates with the PA and pays them. They would be considered the employer under general principles, and so should register as such with HMRC.

In cases where the person receiving care lacks capacity or is a child then they should not be registered as the employer with HMRC. Instead, the person who is responsible for arranging their care should be the registered employer.

HMRC have confirmed the following to us:

‘Persons lacking mental capacity and children who are assessed for a Direct Payment are excluded from legislation from receiving the award. The Direct Payment will be paid to someone to act on their behalf. In the case of a child this is likely to be the parent or guardian and for someone lacking capacity it would be someone who the local authority has agreed is suitable to act on the individual’s behalf. Where the local authority has made the payment of an award to a suitable person it follows that they are responsible for using the Direct Payment for its intended purpose including providing care. If the individual for whom the Direct Payment is awarded requires care then the person in receipt would be expected to arrange it which would mean that they have to enter into an employment contract with the service provider and should therefore be treated as the employer. This means that neither a child nor someone lacking capacity can be an employer and shouldn’t be registered as such by HMRC.’

If you come across a situation where HMRC say that the person lacking capacity or a child should be the registered employer, please let us know so that we can feed back in to HMRC, as it is not correct.

Auto-enrolment for care and support employers

As a care and support employer, you will have to comply with the rules on auto-enrolment. Auto-enrolment means that employers must put qualifying employees into a workplace pension scheme automatically – it is then up to the employee to opt out if they want to do so.

This may be daunting but The Pensions Regulator (which is in charge of auto-enrolment) has lots of help to guide and support you through the process.

When you become an employer, it is important that you confirm with The Pensions Regulator who they should contact at the earliest available opportunity (this will probably be yourself, unless you are asking someone else to help you, for example a tax adviser). You should also advise them that you are a care and support employer so that they can deal you in the most appropriate way.

You do not need to worry about auto-enrolment if your PA is provided by someone else, for example their own limited company, the Local Authority or through a ‘managed’ agency, as you will not be their employer.

Employment Allowance for care and support employers

You can claim the Employment Allowance if you are a care and support employer.

Employers of other domestic staff (such as chauffeurs, gardeners, nannies) are excluded from having the allowance.

Other things to think about if you employ your PA

As an employer, you may need to follow certain rules when you recruit your PA and during their employment with you – such as health and safety requirements in the workplace (your home).

Skills for Care have a toolkit that helps individuals with the practicalities of employing their own PAs, for example how to recruit someone, how to train and develop them and how to assess the risks of employing someone in your home.

Other things you may need to think about include:

• potential damage to your property and possessions;
• your safety;
• safety issues for your PA. This might include things like moving and handling training and health and safety risk assessments;
• ensuring you have adequate employer's liability insurance (and public liability if necessary). Some insurance companies also offer redundancy cover, health and safety advice and access to employment law specialists as part of the policy.

Paying a family member to be your PA

It is important to understand that the existence of a family relationship does not bypass any tax laws – so, for tax purposes, taking on a family member as your PA is just like taking on anyone else.

When trying to work out if a family member is an employee, you need to apply the general principles of whether someone is engaged under a ‘contract of service’ to the facts of the situation. If they are, then you probably need to register as an ‘employer’ and operate PAYE like any other employer.

You should also ensure you consider the minimum wage position and any other employment law considerations.

For National Insurance contributions (NIC) purposes only, if someone is employed by a family member in a private home in which both family members (that is, the employee and the employer) live, then the employment is disregarded. This exception will not apply if the employment is being carried out for the purpose of any trade or business by the employer.

The family members that count for this purpose are:

• father or mother
• grandfather or grandmother
• son or daughter
• grandson or granddaughter
• stepfather, stepmother, stepson or stepdaughter
• brother or sister
• half-brother or half-sister.

See HMRC's guidance for information about this exception.

Taking on a PA who has their own limited company

Usually a PA who is self-employed will be a sole trader – this means an individual in business on their own account. They may trade under their own name, e.g. Paula Gripes, or they may trade under a business name, e.g. Gripes’ Care Services.

If you want to take on a self-employed sole trader, you must be sure that the self-employed status is correct before going any further. This is because you will have the responsibility for deciding whether PAYE needs to be operated on the PA’s wages. The rules relating to employment status and the associated status indicators would all apply as usual.

Some PAs supply their services through their own limited company. A limited company is a legal entity in its own right and must be registered at Companies House. Often, they are run by a single person and in this situation, the PA is both the owner of the company (the director/shareholder) and the person that the company hires out to provide services (the PA will usually set themselves up as an employee of the company to do this).

From your point of view (i.e. the person taking on a PA who works through a limited company), you must engage the PA's company itself to provide the required care services. In this situation, you must pay the company for its services, usually on production of an invoice (you do not pay the PA directly). The PA should be paid for the work they carry out by their own company. In some ways this makes things easier for you, as it is the limited company’s responsibility to decide the correct employment status of the worker they provide to carry out the care – not yours.

The limited company will need to consider HMRC’s employment status indicators. If the worker would be an employee of yours but for the limited company being in the middle of it all, then the limited company is supposed to tell HMRC and potentially pay them some extra tax. This is because special tax rules relating to employment intermediaries would almost certainly apply (known as the IR35 rules).

These rules are particularly complicated and professional advice would be needed if this applies, however they are not your concern as the person engaging the company.

Please note that since April 2021 some ‘end clients’ have to take more responsibility for determining whether the IR35 rules apply to a particular engagement. But these changes should only affect medium and large size businesses who use workers in limited companies, not individual employers like care and support employers.

Adding your PA to the payroll of an existing business

HMRC’s Employer Helpline advise that in a situation where a care and support employer also runs a business that employs staff, it would probably be best to manage your PA's payroll separate from that of your business. This is because businesses are allowed to deduct their employees' wages costs as a business expense for tax purposes and unless your PA directly contributes to your business, their wages are not allowed to be claimed as a business expense. Keeping the two sets of payroll records separate therefore prevents accidental calculation errors and keeps everything clean and tidy.

As such, HMRC advise that you should register as a new employer with them for your PA. This will mean that a new PAYE reference is generated under which you can then manage your PA’s payroll. You can find information about registering as an employer on our Registering as an employer page.

Options for running your payroll yourself

Most employers have to run their payroll and file their PAYE information to HMRC online using payroll software. HMRC say doing things online is quick, easy and secure and you are much less likely to make mistakes.

There are several options for payroll software on the market including some free ones like HMRC’s Basic PAYE Tools (BPT), which is simple, secure and reliable. We explain all the options in our guidance.

However, a handful of employers are exempt from online filing so that they can send information to HMRC on paper. You cannot choose to use paper filing because you prefer it, however you can use paper filing if you are recognised as a care and support employer by HMRC, and you meet the conditions explained below.

Exemption for care and support employers

You can file on paper as long as your PA provides the care or support services at or from your home, and all three of the following conditions are met:

• the care or support services must be provided to the employer or a member of their family,
• the recipient of the services must have a physical or mental disability, or be elderly or infirm, and
• the employer must be filing their return themselves, not having someone else such as a friend or accountant file it on their behalf.

If you do not qualify for paper filing by meeting the care and support employer conditions above, you may still be able to file on paper if HMRC consider you are unable to file online if exceptional circumstances apply. You will need to be able to show that:

• you will have significant difficulty in using an online channel, or
• you are unable to use an online channel.

You can find out more about exemptions from online filing and what HMRC consider to be exceptional circumstances on GOV.UK.

You can read more about the differences between paper filing and online filing on our Filing options page.

Contacting HMRC

In the first instance, you should call the Employer Helpline if you have a question or problem with operating PAYE. There is a general Employer Helpline and one for new employers.

Most of HMRC's Helplines now use an automatic system when you first get through – a recorded voice asking you various questions. If you call the Employer Helplines you may be asked if you are a business, agent or something else. You should be aware that in this context 'business' means employer and is the correct option to press even if you employ someone domestically in your home, and you do not consider yourself a ‘business’.

See our Getting help section for more hints and tips on using the telephone voice recognition system and getting through to HMRC

HMRC’s Extra Support Team can help employers who need extra help dealing with issues about operating PAYE. It is therefore likely that if you phone HMRC and explain your circumstances, you will be passed to this specialist team to be dealt with.

You may find it useful to know that care and support employers are not necessarily distinguishable from other employers on HMRC’s systems. If you contact HMRC and explain that you are a care and support employer, they may ask if they can set a signal on your records (or you could try and ask them to do this). Such a signal on your records may be helpful to you, for example if you need the Extra Support Team, as this will allow HMRC to identify you quickly and deal with you appropriately.

What if you get things wrong with payroll

We talk about what to expect if you get your PAs tax status or PAYE wrong on our Dealing with PAYE errors page.

One of the things we know causes difficulty is filing RTI submissions on time, especially if you are a paper filer.

Strictly, there is no difference in treatment for late filing whether you are operating online RTI or paper process RTI. However, HMRC have indicated that they will take a sympathetic view and try and help educate paper filing care and support employers who look like they may be struggling, as opposed to turning to penalties.

If you are a paper filer and have any difficulties with completing the forms, we recommend calling HMRC to ask for help (see heading above: Contacting HMRC) before you submit them. It is always better to contact them first rather than waiting for them to contact you.

HMRC can also offer you support if you are having money problems and are unable to pay your PAYE bill either on time or at all. Contacting them as early as possible may mean that you avoid penalties.

What if your PA lives with you – tax implications

If you have a PA who you need to have close by, round the clock, that you provide living accommodation to, you should be aware that you may be providing a taxable benefit in kind.

Living accommodation is an independent living space, perhaps a separate house in the vicinity or a self-contained annex in the garden. Board and lodging – that is, where the PA is provided with meals and somewhere to sleep in the employer's house, is different. There is a tax and NIC exemption on the benefit that arises when a care and support employer provides their employee with board and lodging as confirmed in HMRC guidance.

Normally the provision of living accommodation is a taxable benefit – as are any related costs, for example council tax, upkeep or the provision of furniture.

You may have heard that if the accommodation is provided because it is job-related there is no taxable benefit. This is true, however, you should be aware that the rules around what is job-related are quite tightly drawn – as we will go on to explain.

Job-related accommodation

Living accommodation, is job-related if:

• it is necessary for the proper performance of your employee’s duties that they reside in the accommodation; or
• the accommodation is provided so that they can perform their duties in a materially better way, and they are in the kind of employment in which it is customary for employers in that business to provide accommodation; or
• there is a threat to their security and special security arrangements are in force, and they reside in the accommodation as part of those arrangements.

Although it can be the case that accommodation is not taxable when ‘it is necessary for the proper performance of the employee's duties that the employee should reside in it’, in reality HMRC apply some quite strict rules to the types of employments that are covered by such an exemption. HMRC say in their guidance, that in order for the test to be applicable, it has to be shown that the person has to live in that house and no other in order to be able to do their job. The difficulty is that most people would be able to live in say, a different house but one within a certain perimeter, and still do their job.

HMRC also provide a list of the types of jobs they see as covered by these rules. As you can see, a care and support employer is not listed by HMRC, therefore there is every likelihood that the accommodation will be taxable as a benefit in kind. However, it is worth pointing out that this is only HMRC’s interpretation of the law and depending on how strongly you feel that your situation falls within the remit of the exemption, you may wish to take this up with them.

Please note that even if HMRC agree that the living accommodation is exempt because it is job-related, other expenses relating to the accommodation, such as the cost of heating and lighting, are taxable (but the taxable benefit is limited to 10% of your employee’s taxable earnings). In addition, if you provide the use of furniture and appliances, there is typically an annual tax charge based upon 20% of the cost of the items. Any council tax or water rates you pay on behalf of your employee, or reimburse to them, are exempt.

Accommodation that is not job-related

If the accommodation is a taxable benefit in kind, there will be an income tax charge on the value of the benefit on the employee, and a class 1A NIC charge on you, the employer.

You can find some basic information on the benefit of living accommodation on GOV.UK. It is also covered in Chapter 21 of HMRC's benefits and expenses booklet.

HMRC’s more detailed guidance includes a step-by-step calculation guide should the provision of accommodation actually be taxable.

Your PA lives with you – employment law and minimum wage implications

Even if your PA lives with you, they are still allowed time off and rest breaks. You should research the position as to their employment law rights carefully.

Sleep-in shifts

There are also minimum wage issues. If your PA provides you with 24-hour support, then things can get a little complicated when thinking about how to treat sleep-in shifts.

The law around pay for sleep-in shifts has been in a state of flux. For years, many employers only paid a flat rate (for example £20 or £30) for a sleep-in shift on the basis that the worker was not available for work and was therefore not protected by the minimum wage rules.

They were essentially relying on the National Minimum Wage (NMW) Regulations, which say hours when a worker is available only include hours when the worker is awake for the purposes of working, even if a worker by arrangement sleeps at or near a place of work and the employer provides suitable facilities for sleeping (Regulation 32).

However, then a spate of cases came before the Courts, which suggested there was more to it than this. Judges in these cases seemed to be saying that before getting to the question of whether the worker was available for work (which is where the exception for sleeping is embedded), one had to ask whether they were already actually working. If they were actually working, then you did not need to consider whether they were available for work and as such, the sleep-in exception could not apply.

For a while the position was therefore that sleep-in shifts were working hours and were subject to the minimum wage.

A 2018 Court of Appeal decision changed the position again. Broadly, the Court of Appeal ruled that workers doing sleep-in shifts (whilst they are sleeping) are ‘available for work’ rather than actually ‘working’. This means they can be covered by the sleep-in exception and are only entitled to the minimum wage when they are required, because they need to undertake a specific activity, to actually be awake.

However, if suitable sleeping facilities are not provided then the minimum wage must be provided for the entire shift. In addition, the position is different where workers are working and not expected to sleep for all or most of a shift, even if there are occasions when they are permitted to sleep (such as when not busy). In this case, it is likely that the minimum wage must be paid for the whole of the shift on the basis that the worker is in effect working all of that time, including for the time spent asleep.

The subsequent Supreme Court decision confirmed the position that sleep-in workers are only working and eligible for minimum wage when they are ‘awake for the purposes of working’. Sleep-in workers are those who are contractually obliged to spend a shift at or near their workplace, usually at night (but it could be during the day), and who are expected to sleep for all or most of that shift but are woken if required to undertake a specific work activity. They are not entitled to minimum wage when they are permitted to sleep. The government’s official guidance on sleep-in shifts takes account of the Supreme Court case.

Note that if you provide your PA with accommodation (which for NMW purposes seems to include anywhere with a bed and washing/toilet facilities), then you should consider if the accommodation offset applies.

If accommodation is provided by you as part of the job (including things like electricity, laundry costs, etc.), some of its value can be counted towards NMW or NLW pay. You cannot count more than the accommodation offset rate which is in force at any given time.

The maximum offset rate for accommodation (from April 2023) is £9.10 a day or £63.70 a week.

If the accommodation is free, the offset rate is added to the worker’s pay.

No similar adjustments can be made for any meals/refreshments or other benefits that are provided by you.

If you charge more than the accommodation offset, the difference is taken off your worker's pay which counts towards the NMW or NLW.

If the accommodation charge is at or below the offset rate, it doesn’t have an effect on the worker’s pay.

The accommodation offset rate is amended on 1 April each year.

You can find more information on the accommodation offset rules on GOV.UK.

More information

You can read through all of our guidance on becoming an employer by starting at the beginning of this section.