If you really want to use a NMOS and not a PMOS, I would suggest to put it at the negative side(U3 to Drain, Source to ground). In other words connect the source to ground and the terminal "ground" to the drain.
This way Vgs will always be whatever you provide at the gate, assuming Source is connected to the same ground as whatever it is that controls it.
Why? An NMOS switches when the threshold Vgs is positive, which when you think about it is not optimal in your schematic. As soon as it starts conducting Vds becomes close to 0, which also means that Vgs is lower than what you expect it to be. It kind of starts acting like a voltage divider, which is not a switch.
The downside of connecting it behind the load is that U2 will always be hot. It switches the device by connecting/disconnecting ground.
A PMOS on the other hand works by conducting on when Gate is a certain amount lower than the Source voltage, which electrically is called a negative Vgs which makes it sound harder than it is. If you supply 5V to Source, a simple ground at the gate will make it turn on(Logic low in atmega328 terms). You turn it off with logic high(5v).
sidenote: PMOS has Drain and Source pins flipped