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TaxHelp for Older People warn of the possible tax implications of receiving ‘Direct Payments’ which allow individuals, including pensioners, to pay for their own care and home help. 

What are ‘Direct Payments’?

You may be wondering what on Earth this heading means. We shall explain. 

As we get older, help around the house starts to become a desirable option and if money is tight, it is often the time to approach your local Social Services for help. If you are assessed as needing help and care, you may be offered Direct Payments.
 
In the past, Social Services would arrange your care and you would have little say in the matter. These days, however, we all have more choice. Direct Payments mean just that, providing you are able to consent to having them. You are allocated an amount of money that you can decide how to spend. This all sounds great, but there are some rules that need to be followed. For example, you cannot use the money to pay for a service from your husband, wife, civil partner or partner you live with as a couple. Close relatives and their partners are also a ‘no-no’. Check the terms of the scheme under which your payment is made.

You are also required to account for the money you spend. You need to keep all your receipts for services and keep timesheets signed by your carers.

Paying Carers - the Potential Problems

This is where TAX rears its ugly head. Paying someone to work in your home may legally class you as being their employer. You will need to run a “Pay As You Earn” (PAYE) system. Most of us will never have been in this situation before and will have no concept of what it really entails.

There are special rules used to decide if a person is employed or not. But as a simple guide, if you have placed an advert and they work only for you and to your directions, then you will most probably be classed as their employer. If you decide to pay an agency to provide the help, then the agency will probably be the employer. The carer might also be self-employed or freelance, for example providing care to a number of people; but watch out – just because someone says they are self-employed doesn’t always mean that they are in the tax man’s eyes, who might instead see them as your employee and expect you to operate a payroll.

If you are the employer, then this is the time to find out what is involved. Hopefully the local authority will have given you some information by way of explanation or a booklet. Ignoring it is not wise. These things have a tendency to catch up with us in the end. Tax can be a bit scary, but considering the following points will help you decide if action is needed.

In some cases, you might not need to run PAYE anyway, for example if the person doesn’t have any other job or pension (including State Pension) and you are paying them less than £95 a week (rising to £97 a week from 6 April 2010).  Also if they have no other job or pension and you are paying them between £95 (£97 from 6 April 2010) and £110 a week, you may not need to operate full PAYE but you would need to do some form-filling to tell HMRC about their earnings, which is important so that their National Insurance record is kept up to date.

Being an employer also means that you need to think about things like the National Minimum Wage, sick pay, maternity/paternity pay, annual leave and redundancy. You are probably now realising that it is important that you seek advice. If you are happy to deal with it yourself, then Register as an Employer with HMRC as soon as possible. If not, your Social Services group should be able to direct you to a trust or foundation to run the payroll for you.

Useful Links and Contacts

This article is by TaxHelp for Older People (TOP), registered charity no. 1102276. The helpline number for free tax advice for the over 60s on less than £17,000 per year is lo-call 0845 601 3321 or geographic number 01308 488066.

Note also that whilst most employers will have to file PAYE returns online from 6 April, there remains an exemption for certain ‘care and support’ employers.