Reply to: Do i HAVE to claim maternity pay?

[minstrel]

Sorry, one last thing

In another context I ended up in SSCBA 1992 today, S166 for SMP says:



Emphasis mine

Hopefully this explains a bit more where I was coming from - the normal weekly earnings requirement would seem to preclude a one off bonus no matter what HMRC guidance has to say; in reality I suspect that leads to a distinction between "normal" bonuses and "exceptional" bonuses (my terms). Any attempt to manipulate the 8 week period would be open to attack as "not normal"

Good point Jessica.

I definitely agree with you that paying a high bonus would be open to attack.

[Jessica@WhiteFieldTax]

Sorry, one last thing

In another context I ended up in SSCBA 1992 today, S166 for SMP says:

Rates of payment
(1)There shall be two rates of statutory maternity pay, in this Act referred to as “the higher rate” and “the lower rate”.
(2)The higher rate is a weekly rate equivalent to nine-tenths of a woman’s normal weekly earnings for the period of 8 weeks immediately preceding the 14th week before the expected week of confinement or the weekly rate prescribed under subsection (3) below, whichever is the higher.

Emphasis mine

Hopefully this explains a bit more where I was coming from - the normal weekly earnings requirement would seem to preclude a one off bonus no matter what HMRC guidance has to say; in reality I suspect that leads to a distinction between "normal" bonuses and "exceptional" bonuses (my terms). Any attempt to manipulate the 8 week period would be open to attack as "not normal"

[Jessica@WhiteFieldTax]

I think your being a bit half hearted. Either say it's wrong to artificially increase salary during the relevant period to get higher SMP, or present an aggressive approach to increase salary and interpret rules in client's favour.

Its not an accountants job to make decisions for a client; everyones risk profile will vary, so the best any advisor can do is guide their client then take instructions.

Your scenario of aggressively increasing salary and then "making up" rules that benefit HMRC instead of your client seem neither one thing nor the other.

Not quite. IMV HMRCs employers guidance and manuals don't cover the annual earnings period scenario accurately, I was trying to explain why. If this was picked up by HMRC some HMRC staff may let it go, but I would expect a more switched on one to go back to the underlying SI and assess a SMP overpayment on that basis; I was trying to demonstrate why.

Anyway, I think we've done this to death now. I've got a essay to finish before the weekend.

Good luck what ever you do, Minstrel

[northernladuk]

Yes - although if I'd taken your advice and sacked him instantly I would not have done. I'm also not sure why you feel entitled to free advice from my accountant? What did your accountant say?

[minstrel]

Well, if thats not ad hominem then I'm not sure what is.

Again I'd like to reiterate that at no point have I made any personal comments against you, I've simply challenged your argument. That's what this forum is for.

To clarify - I am not saying use the SSP rules. I am saying that I don't think HMRCs SMP manuals and working sheets address annualised salaries properly and I think the SSP rules give a clearer indication of how I would expect HMRC to address the issue. I think HMRCs SMP commentary lacks detail when it refers to including bonuses in the pay figure, without addressing that these could be annualised income.

I think your being a bit half hearted. Either say it's wrong to artificially increase salary during the relevant period to get higher SMP, or present an aggressive approach to increase salary and interpret rules in client's favour.

Your scenario of aggressively increasing salary and then "making up" rules that benefit HMRC instead of your client seem neither one thing nor the other.

I don't have a problem with you saying it's high risk and would not advise increasing salary. However, claiming that taking the high risk route will only make a few hundred pounds difference is misleading.

If it worked then as soon as they knew they were pregnant, every woman would ask their employer to drop their salary to NMW and pay a bonus in the proceeding 8 weeks to SMP.

Do you have any evidence of a client who has taken the aggressive route and been challenged successfully by HMRC?

Anyway, whatever you may feel Minsterl, you've had a good slug of guidance; now you need to resolve with your accountant.

I think I've given you as much food for thought as you have given me.

[minstrel]

Am still waiting for your accountants method... Has he responded yet?

Yes - although if I'd taken your advice and sacked him instantly I would not have done. I'm also not sure why you feel entitled to free advice from my accountant? What did your accountant say?

The way I typically use this forum is to cross check advice from accountant. I normally like to have a go at working things out for myself and then pose the question to my accountant and on here.

If my calculations, my accountant and the general consensus on the forum agree, then I have a high level of confidence in the solution. If there is disagreement then I need to take a call.

FWIW my accountant (FCA CTA with 20+ years of experience) agrees with my calculations. Statutory Sick Pay calculations are not relevant (in his view). He's made it clear that it is an aggressive strategy that may be challenged. However, he's also given me some good suggestions on how this risk can be mitigated.

Why are you thrashing the life out of something on a free forum taking someone to task that really DGAS?

The calculations on Statutory Maternity Pay and small company directors | Whitefield Tax Limited are misleading and don't present all the options.

I think it's right to thrash out all the arguments.

If you DGAS why are you even participating in the thread?

[Jessica@WhiteFieldTax]

Well, if thats not ad hominem then I'm not sure what is.

To clarify - I am not saying use the SSP rules. I am saying that I don't think HMRCs SMP manuals and working sheets address annualised salaries properly and I think the SSP rules give a clearer indication of how I would expect HMRC to address the issue. I think HMRCs SMP commentary lacks detail when it refers to including bonuses in the pay figure, without addressing that these could be annualised income.

If it worked then as soon as they knew they were pregnant, every woman would ask their employer to drop their salary to NMW and pay a bonus in the proceeding 8 weeks to SMP.

Anyway, whatever you may feel Minsterl, you've had a good slug of guidance; now you need to resolve with your accountant.

[northernladuk]

Jessica's method - uses the rules for Statutory Sick Pay and doesn't create a significant profit.

Minstrel's method - uses the rules in the HMRC E15 guide and may result in a post tax profit of around £3,000..

Am still waiting for your accountants method... Has he responded yet?

Why are you thrashing the life out of something on a free forum taking someone to task that really DGAS?

[minstrel]

On a closing note, your last post was quite rude really; if someone is engaging with you on a free forum, then if you disagree the polite thing to do is thank them and move on - not resort to ad hominem

I disagree with this Jessica. The purpose of this forum is not for two members to disagree and then give up the debate. Each participant should openly present how they came to their conclusions, others can chip in and sometimes we get to a concensus (or at least give some of the different options).

I don't think I was being rude. NLUK said I should sack my accountant and use you. I'm not a latin expert but I thought ad hominem was a "personal attack" rather than one against the argument. I actually tried very hard to make it non-personal and only reference the arguments you had made. I'm genuinely sorry if you felt it was a personal attack as that was not my intention. You often give good advice on this forum, I just think on this occasion your argument is weak.

I simply stated that you hadn't clearly explained why you decided to divide the figures by 52 instead of 8 and you hadn't presented any evidence to show why my £3,000 calculation was wrong. Explain to me why this is a personal attack and not one against your argument?

You agree that you weren't clear on the 52 week rule as you've added a post on the rules for Statutory Sick Pay (which may cross over).

You appear to think that because your day job is an accountant, you are somehow more important than other posters and your time is worth more than their's.

To be clear, I didn't start participating on this thread asking for advice. I politely challenged the calculations on your web site because they didn't appear to be based on rules in the HMRC E15 guide.

So far you've not been able to justify your calculations other than by using the rules for Statutory Sick Pay. Maybe that's the correct way of doing things, maybe it's not.

What annoys me on this forum is when "professional advisors" give out advice and then when challenged can't back up their position. They then either don't respond to the thread, act like it's too complicated for a non-accountant to get their tiny brains around or are suddenly "too busy" to look at detailed calculations.

Anyway, I think this is one of those threads where we're not going to reach a concensus.

It appears there may be 2 ways to calculate the amounts of Statutory Maternity Pay:

Jessica's method - uses the rules for Statutory Sick Pay and doesn't create a significant profit.

Minstrel's method - uses the rules in the HMRC E15 guide and may result in a post tax profit of around £3,000.

My method is clearly aggressive and may be challenged by HMRC. However, the majority of contractors are probably operating outside of IR35 and already accepting the risk of an HMRC challenge.

If readers are looking for a risk averse interpretation of the SMP tax legislation that maximises HMRC revenue and reduces profit for the mother they have that option too.

[Jessica@WhiteFieldTax]

A good communicator? Well there is still my question about where the "52 week prospective average weekly earnings figure for SMP" rule comes from which I don't think has been fully addressed yet.

Knows what they are doing? Her current position appears to be that it's probably not worth it as the benefit is probably around £300. By my calculations the benefit is closer to £3,000 and could be worth considering.

You've had a lot of free advice and the task is now for you to run the figures for your scenario with your accountant, and make your choices.

On 52 weeks, http://www.hmrc.gov.uk/manuals/spmmanual/SPM10640.htm suggests:

An employee may have an annual pay period for NICs if they:

are paid once a year
receive a significant proportion of their earnings as an annual bonus or comparatively large commission payments
are a director, or
are paid in the same way as a director.

This is an SSP not SMP section, but as far as I can tell the SSP principles and SMP principles cross over, eg SPM20805 cross refers to SPM10606 (yes, I know "as far as I can tell" isn't satisfactory, but not everything is black and white). SPM20805 et seq refer to "earnings in relevant period" and if you've been ticking along at £8k and jack it up to £28k (via £20k bonus) then it seems to me it's in the "receive a significant proportion of their earnings as an annual bonus" limb above, and a 52 week divisor has to be used to annualise the earnings over a annual earnings period (ignore the directors bit, as a director in a contractural salary is as for any other employee anyway). I agree this isn't explicit in the manuals, and could be read either way.

I think in essence it's why the example on my web site and your figures differ; you generate a lot more SMP your way, but from a salary level which if annualised would be unsustainable from the business, so IMV open to attack from HMRC - however it would have to be your choice on whether to take the risk or not.

On a closing note, your last post was quite rude really; if someone is engaging with you on a free forum, then if you disagree the polite thing to do is thank them and move on - not resort to ad hominem

[minstrel]

One other point we need to consider is that from April 2014 Employers will potentially get a £2,000 Employment Allowance which can be used to reduce Employers NIC bill.

This means the gain for paying a bonus could be around £1,600 better off (CT would be payable on the reduced NICs).

In future could even be spread across 2 tax years to get 2 lots of £2k allowance.

N.B. not exactly sure how the Employment Allowance is going to work. If they do something like exclude Director contributions or similar, then obviously this wouldn't work.

[minstrel]

I would sack my accountant and get another if this is how long they take to respond IMO

Thanks for your input NLUK.

Sacking your accountant if they don't respond to your questions the same day is certainly one way of managing your professional advisers.

Personally, I prefer the service I get from my accountant. I got an immediate response saying that I raised a good point. He wanted to run the figures himself, check the rules hadn't changed since the last time he calculated SMP and do some further investigation to see if there are any other options that might be worth considering. As this wasn't an urgent request and he had other client commitments, he suggested he has a few days to mull it over and come back with some options this week.

That's perfectly acceptable to me, and I'd prefer this kind of bepoke service to a "stock response" 30 minutes after asking the question.

Someone that knows what they are doing, good communicator and willing to help... Oh hang on, one of them is on here. Engage their services instead would seem like a good move.

If you are referring to Jessica, then I agree that she's been very willing to help and has pointed out some problems with my initial calculations. I'm very grateful for this.

A good communicator? Well there is still my question about where the "52 week prospective average weekly earnings figure for SMP" rule comes from which I don't think has been fully addressed yet.

Knows what they are doing? Her current position appears to be that it's probably not worth it as the benefit is probably around £300. By my calculations the benefit is closer to £3,000 and could be worth considering.

I'm happy to accept my calculations are wrong, but I've published my workings and no-one has shot it down yet.

[northernladuk]

I've asked the question and am awaiting a response.

I would sack my accountant and get another if this is how long they take to respond IMO. Someone that knows what they are doing, good communicator and willing to help... Oh hang on, one of them is on here. Engage their services instead would seem like a good move.

[minstrel]

Edit: sorry, re -reading its the NI implications of the salary during enhanced SMP period. You've got to pay the salary to claim the SMP, so its Ers and Ees on the 6 weeks @ £2,209.

Thanks Jessica. Yes - you're right I missed out £12,299.10 of salary in the £20k bonus scenario.

Revised figures are:

£20k Bonus

Average weekly earnings in relevant period: £2,455.38462
Weekly rate - first 6 weeks £2,209.85
Weekly rate - for remaining 16 weeks £136.78
Total SMP £15,447.58
Recoverable from HMRC (SMP @ 103%) = £15,911.01

Company Position

Ltd income = £30k + £15,911.01 = £45,911.01
Salary = £39,979.10
Ers NI = £4,455
Pre Tax Profit = £1,476.91
CT = £295.38
Post Tax Profit = £1,181.53

Personal Position

Salary = £39,979.10
Ees NI = £3,867
Income Tax = £6,106
Net Salary = £30,006.10
Dividends = £1,181.53
Total = £31,187.63

It's still £3,000 difference compared to the non-bonus case which is possibly worth considering.

You also need to consider how the bonus is accounted for - are there profits or a loss carry back available for it?

Bonus would be accounted for from the £30k income. I'm assuming that company doesn't need profit to cover SMP as I thought it's a state benefit (but I could be wrong).

[minstrel]

What does your accountant say?

I've asked the question and am awaiting a response.