I recently submitted a request for funding for statutory maternity pay for a client who runs a one woman company and was about to have a baby. This client, in common with many small companies, makes drawings through the company year that are treated as a minimal salary (enough to clock up pension entitlement, but not enough to involve paying any actual NI) and the rest is dividend. The salary is treated in the normal way, P35 submitted on time etc. The company accounts year is 30 April but we have always taken the salary payment date as 31 March so 09/10 salary per P35 is the amount in the April 2010 accounts.
There was much to-ing and fro-ing on the telephone with HMRC when it was variously suggested by their staff that
a) The rules had been changed recently for statutory maternity pay claims for directors
b) Directors often draw artificial bonuses in order to maximise maternity pay
c) My client couldn't be working enough hours to be entitled to maternity pay because her salary would mean she was earning below the national minimum wage (I know, she's a director, it doesn't apply)
Eventually I was told that I must speak to a 'technician' on the employer helpline who would determine whether the client was entitled to maternity pay. According to this technician where a company director receives a salary which is not contractual this only becomes 'salary' at the date that the relevant accounts are signed and the period that the salary relates to is the period since the previous accounts were signed. In the case of my client the 2010 accounts were signed in November 2010 and the 2009 accounts in September 2009 so the salary in the 2010 accounts is apportioned over 14 months (September 2009 to November 2010) which meant the weekly amount was too low for any maternity pay entitlement.
I asked her for statute chapter and verse to back up this, to my mind, unfair and arbitrary treatment and was told that she couldn't give it to me but I should read the various HMRC notes and booklets.
Has anyone else encountered this treatment of a director's salary and if so is there a counter argument?
And am I the only one who considers it unsatisfactory that HMRC will only conduct this sort of technical discussion over the telephone rather than committing themselves to paper?
Any suggestions will be gratefull received although it may be that this is ultimately an argument where I need to resort to the big political guns of Mumsnet and the Women's Institute :-)
Replies (7)
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Clamping Down?
We did this last year for a client in almost identical circumstances to yours.
We just went through the normal process with the payroll, P35 and, apart for the usual chasing from the repayment per the P35, no problems or questions. How / why did they single yours out? Surely ti woudl have just gone through the system automatically without hitting the radar?
Mine has just been resolved ...
we followed no specific procedure and nobody ever suggested that there were special rules .... the refund arising did howebver take 10 months to materialise and several letters!
Takes time
I wasn't the partner dealing with it, but I have a dim memory of a director's SMP claim early last year, and that it took a bit of chasing for the money to come through.
Slight tangent but I've had SSP funding for directors come through within 3-5 working days.
With regards the NMW question, £476.25 per month is about 18 hours a week at NMW.
New regs for companies formed after 1st Oct 2009
I was reading this with interest - if you go to the HMRC guidance, it does say that non contractual pay is taken from the date of the last formal vote to the most recent one. If the company was dormant in between, not much use.
But
SPM20836 is interesting and contradicts the guidance. Basically the new articles allow its directors to determine a directors remuneration so:
Directors can decide what and when to pay remuneration. There is no need for a resolution of the company’s shareholders at its Annual General Meeting (AGM).
In such cases payment of director’s fees will be regarded as earnings for the purpose of entitlement to SSP/SMP/SAP/SPP/ASPP on the date payment was made.
So basically, if the director draws a large bonus/salary in advance of a vote, and the company is formed after Oct 09, it seems that counts for SMP. Not quite sure if it means "physically pay out a remuneration" or "include on paper in advance of a vote".
Does everyone interpret this the same?
Is there an "optimum" salary/bonus to maximise SMP?
Hope you don't mind me resurrecting this thread as I have a client who is a part-time director and receives remuneration of £580 per month. Is there an optimum bonus amount (or salary increase in the months before maternity leave starts) that keeps her in the 20% tax band (she has no other income), maximises her SMP entitlement and is worthwhile given the NI liability that would arise on the bonus? There are other employees on PAYE so recovery is not an issue.