Readers question: I am one of two company directors in an ltd company. My partner in business has been told by her midwife that she is entitled to 90% of her salary while on maternity leave. For us to pay her, we would need to employ another person to do her job, this would put the business in financial difficulty. Is this the case?
Experts answer: The expert answering this question is Sophie Tyler from Dolan Accountancy.
Statutory Maternity Pay
As an employer, your Limited company will be able to claim 92% of your employee’s (the business partner) Statutory Maternity Pay (SMP) paid, from HMRC.
If your Ltd qualifies for Small Employers’ Relief, you can actually claim 103% of the SMP back from HMRC – this is likely to be the case for yourself, as this is if your company pays £45,000 or less in Class 1 National Insurance.
The claim is usually made on a monthly basis via the Payroll submissions and can be offset against your PAYE bill for the year. If your PAYE bill will be less than the SMP amount due back to your company, once the tax year has ended, you can write to HMRC and ask them to make a repayment back to your company.
Should you have problems with cash flow and making the SMP payments to the employee, you can apply to HMRC for the SMP to be made in advance to your company. You can apply up to four weeks before you want the first payment. I would advise looking into this option if your company will be paying another individual during the period of maternity leave.
Eligibility of SMP
To ensure your business partner is eligible for the SMP, please bear in mind the below;
- The employee must earn, on average, at least £118 per week, in salary
- She must have worked for your Limited company, continuously for at least 26 weeks continuing into the ‘qualifying week’ – the 15th week before the expected week of childbirth
- You need to keep proof of pregnancy/the expected birth week on record, usually the MATB1 form provided by the midwife.
Should your employee qualify, Statutory Maternity Pay (SMP) is paid for up to 39 weeks. As described above, your Limited company would initially fund the SMP, to be later refunded by HMRC or offset against any PAYE bills, unless you have successfully applied for Advance Funding from HMRC beforehand.
SMP is 90% of the average weekly earnings before tax, for the first 6 weeks. After this, it is £148.68, or 90% of the average weekly earnings (whichever is lower) for the next 33 weeks.
You need to bear in mind that as a Director, and presumably shareholder, your business partner will still have the right to attend meetings and make decisions on behalf of the company, but should not exceed the maximum Keeping In Touch days, otherwise, she could lose her entitlement to SMP.
Should your business partner not be able to claim SMP, due to not meeting the criteria, she can instead look at claiming Maternity Allowance.
As the employer, your Limited company would need to provide an SMP1 form to state your employee was not eligible for SMP. This is needed when sending the claim to the Jobcentre Plus.
In the 66 weeks before the baby’s due, your business partner must also have been employed for at least 26 weeks (or self-employed) and earning £30 a week or more in at least 13 of these weeks (they do not have to be consecutive weeks).
HMRC have some handy calculators to work out what the SMP will be.
Note, your company will need to have a PAYE scheme in place, with your business partner as an employee, and this should have been in place throughout the qualifying weeks for the SMP. Dividend drawings do not count towards the average earnings for SMP or Maternity Allowance.
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