Do i HAVE to claim maternity pay?

[quackhandle]

Each to their own.

qh

[psychocandy]

SMP and SPP (Statutory Paternity Pay) is currently at the rate of £135.45 per week, this will increase to £136.78 from April 2013.

SPP can be paid for one or two weeks and can only be taken in one block, so you can either have one or two weeks in total, you cannot have one week now and another week, say a month later.

How does it work though? OK, assuming employer pays you normal pay when you're on paternity leave (which a lot of permie employers anyway) and you pay yourself normally - who has the SPP?

I'm assuming it goes to the employer then? After all, assume permie employers kindly pays you full pay and then claws some back by keeping the SPP.

If company gets the SPP, are there any other tax/NI implications? For instance, will it screw up my £7488 salary idea? I guess not since I'll still get £7488 but my employer (my company) will get an SPP payment as well....

[Nixon Williams]

How does it work though? OK, assuming employer pays you normal pay when you're on paternity leave (which a lot of permie employers anyway) and you pay yourself normally - who has the SPP?

I'm assuming it goes to the employer then? After all, assume permie employers kindly pays you full pay and then claws some back by keeping the SPP.

If company gets the SPP, are there any other tax/NI implications? For instance, will it screw up my £7488 salary idea? I guess not since I'll still get £7488 but my employer (my company) will get an SPP payment as well....

The employer can continue to pay whatever salary it likes, provided that it is at least the levels set for SMP (basically 90% of average pay for 6 weeks and then the statutory rate for upto another 33 weeks).

The SMP can be reclaimed from HMRC at the statutory levels as set out above. Smaller employers can also claim a small "admin fee" of 4.5%.

It is the same for SPP, although the sums are smaller but effectively the funds are reclaimed from HMRC.

The employee does not receive this HMRC refund, it goes to the employer, the employee receives the salary as normal, so there is no reason why the salary of say £7,488 cannot be paid, although the company would need to ensure it has the funds.

Your accountant can set this up with no problems and they should handle it all for you.

Alan

[psychocandy]

The employer can continue to pay whatever salary it likes, provided that it is at least the levels set for SMP (basically 90% of average pay for 6 weeks and then the statutory rate for upto another 33 weeks).

The SMP can be reclaimed from HMRC at the statutory levels as set out above. Smaller employers can also claim a small "admin fee" of 4.5%.

It is the same for SPP, although the sums are smaller but effectively the funds are reclaimed from HMRC.

The employee does not receive this HMRC refund, it goes to the employer, the employee receives the salary as normal, so there is no reason why the salary of say £7,488 cannot be paid, although the company would need to ensure it has the funds.

Your accountant can set this up with no problems and they should handle it all for you.

Alan

Sounds good. Cheers Alan.

Not much but better than a poke in the eye.... and I like the idea that I can charge an admin fee to HMRC. Cool.

[minstrel]

No, I'm not aware of any obligation to claim.

@pitsy - if you crunch the numbers, maternity pay isn't worth a great deal to a low salary / high div individual, as to maximise maternity pay you need to increase salary and reduce dividend, and the increased NI outweighs a lot of the benefits. However I stress crunch the numbers, this post in my firms web site is a example of the dilemma:

Statutory Maternity Pay and small company directors | Whitefield Tax Limited

But, I stress, do the maths individually.

Jessica - I've got a couple of questions on the example.

On the figures above, on £40k you could increase the SMP to £4,153 for the first six weeks (£40k/52 x 90%). You claim £4,278 back from HMRC (£4,153 @ 103%).

Surely, the £40k bonus would be paid in the 8 week qualifying period so weekly SMP for first 6 weeks is £4,500 per week (£40k/8 x 90%) or £27k total?

(a) Corporation Tax on the £3,422 extra SMP – that reduces it to £2,738

Any SMP paid by HMRC to the Ltd would be paid to the employee (and back to HMRC via NI) so the Ltd would have no net increase in profit and therefore no additional Corporation Tax regardless of the value of the SMP?

[Jessica@WhiteFieldTax]

The divider has to be 52 as you are using the retrospective period to establish prospective weekly earnings.

As I recall, the tax payable by the employee on the enhanced salary is factored in earlier in the calculation, so you need to reduce the additional company income by VT, otherwise you double count.

[minstrel]

Thanks Jessica

The divider has to be 52 as you are using the retrospective period to establish prospective weekly earnings.

I couldn't find anything about 52 week divider or retrospective periods in the HMRC E15 Guide. Is that rule documented somewhere else?

The rules I have seen are all based on earnings in the 8 weeks prior to the qualifying week.

[Jessica@WhiteFieldTax]

Thanks Jessica



I couldn't find anything about 52 week divider or retrospective periods in the HMRC E15 Guide. Is that rule documented somewhere else?

The rules I have seen are all based on earnings in the 8 weeks prior to the qualifying week.

Yes, and they are used to calculate a prospective Average Weekly Earnings figure for SMP - the 52 comes not from creating the average retrospectively, but from translating it to a weekly SMP amount forward.

[minstrel]

Yes, and they are used to calculate a prospective Average Weekly Earnings figure for SMP - the 52 comes not from creating the average retrospectively, but from translating it to a weekly SMP amount forward.

Sorry Jessica, I still don't understand your point. Maybe if I show you an example and using the checksheet on P48 and you can point out where I've gone wrong.

Baby due date: 07/11/2013

Payments made to mother:

28/01/2013 £646
28/02/2013 £646
28/03/2013 £646
28/04/2013 £646
28/05/2013 £20,646 (including £20k bonus)
28/06/2013 £646
28/07/2013 £646
28/08/2013 £646
28/09/2013 £646
28/10/2013 £646

1. Find the date the baby is due 07/11/2013

2. Find the date of the Saturday in the Qualifying Week. 27/07/2013

3. Find the date of the last formal vote (or date monies paid) on or before that Saturday. This is the last day of the relevant period 28/06/2013

4. Count back at least eight weeks from the date in 3 until the date of the previous formal vote (or date monies paid) and come forward one day, for example if the payday is 22 June, enter 23 June. This is the first day of the relevant period. 29/04/2013

5. Add together money voted between the dates in 4 and 3 (inclusive). (Do not include any money drawn in anticipation of the vote.) £21,292

6. Work out how many whole months there are between the dates at 4 and 3 (inclusive). If there aren’t a whole number of months see the paragraph ‘Rounding to the nearest whole month when there is not a whole number of months in the relevant period’ on page 45. 2

7. Divide the figure in 5 by the number of whole months in 6. £10,646

8. Multiply the figure at 7 by 12. £127,752

9. Divide the figure in 8 by 52. £2,456.76923

Average weekly earnings: £2,456.76923
Weekly rate - first 6 weeks: £2,211.10
Weekly rate - for remaining 33 weeks: £135.45

Total SMP: £17,736.45

Amount claimable from HMRC = £17,736.45 * 103% = £18,268.54

For simplicity let's assume all SMP is paid in the 2013/14 tax year. This means Directors earnings for year (£646 * 7) + £20,000 + 18,268.54 = £42,790.54

Employers NI £4,843
Employees NI £4,070
Total NI = £8,913

Assuming income tax can be disregarded as it would be roughly the same if £20k bonus were extracted as a dividend it looks like the company has received around £18k from HMRC and only incurred a £9k NI charge. The NI could be reduced even further by calculating NI on a monthly basis rather than annually as I did in the example.

By my calculations company is at least £9k better off if it pays mother a £20k bonus in the relevant period.

Where have I gone wrong in my interpretation of the rules or my calculations?

[Jessica@WhiteFieldTax]

From a quick look can't see anything wrong with those figures.

However the question isn't whether it's worth claiming SMP per se. It's whether it's worth running the bonus through.

If you kept the salary at £646, then you'll still get £149 x 39 x 103% from HMRC = £5,985 with no NI cost. CT on that = £1,197, leaves you £4,788.

By contrast your scenario gets £8,823 SMP in excess of the NI, it you have 20% CT on £18,268 = £3,653 leaves you £5,170.

So by my reckoning £300 or so better off.

At at level, is it worth it?

Nb working in IPad, so flicking between screens to do figure, apologies if I've missed keyed anything above, I think the principle works though.