SMP

SMP

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A client has told me that she is pregnant and her baby is due on 28/02/15.

She has her own limited company and has not been paid any salary in 2014-2015 or been paid a dividend. I was planning to pay her a salary of £10,000 in March 2015.

It would appear that her earnings up to 15/11/14 would be used to calculate her SMP.

Given personal tax, NICs and reduction in corporation tax, it would appear that it would make sense to pay her a salary of about £41,000 either today or tomorrow. This would give her a huge amount of SMP in the first six weeks.

Is this correct? It would seem to be a flaw in the system.

Replies (21)

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By Manchester_man
14th Nov 2014 09:17

Stop sleeping with clients!!!

Sorry, it's my sense of humour :-)

It's something I've not dealt with for 10 years so I'll leave for somebody else to answer more ably.

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By petersaxton
14th Nov 2014 09:23

10 years?

Has SMP been around 10 years?

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By Moonbeam
14th Nov 2014 09:32

Isn't the real problem whether she plans to cease work..

SMP can of course only be paid if she isn't working for the company during her maternity leave. Does she have someone to look after the company while she's away? Surely by the very nature of things this would be unlikely.

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Replying to mrme89:
By petersaxton
14th Nov 2014 17:27

Freelancer

Moonbeam wrote:

SMP can of course only be paid if she isn't working for the company during her maternity leave. Does she have someone to look after the company while she's away? Surely by the very nature of things this would be unlikely.

When she is not working the company doesn't trade.

 

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Stepurhan
By stepurhan
14th Nov 2014 09:51

Calculator agrees

I'm not aware of any limitations, and HMRC's own online calculator doesn't seem that phased by the amounts, or having the previous last payday as 5/4/2014.

Not run the figures, but SMP is earnings for tax and national insurance purposes. Have you factored that into your calculations? As a director she'll pay national insurance on the lot and be looking at higher rate tax as well. CT deduction will offset of course.

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Replying to vstrad:
By petersaxton
14th Nov 2014 17:32

I'd asked her if she paid herself any dividends

stepurhan wrote:

I'm not aware of any limitations, and HMRC's own online calculator doesn't seem that phased by the amounts, or having the previous last payday as 5/4/2014.

Not run the figures, but SMP is earnings for tax and national insurance purposes. Have you factored that into your calculations? As a director she'll pay national insurance on the lot and be looking at higher rate tax as well. CT deduction will offset of course.

She never mentioned about paying dividends when we discussed her income. She had told me she was living off savings. I thought I'd better check about dividends last night and it turns out she took as much as possible without paying tax on our old understanding of her income. This will indeed affect my calculations as much of her extra salary will be at higher rate.

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By Kirkers
14th Nov 2014 09:54

I'd also echo Moonbeam's comments.

She is not allowed to work and claim SMP (apart from KIT days). Does she have anyone else to run the business? 

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Replying to mrme89:
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By HeavyMetalMike
14th Nov 2014 12:07

Not allowed to work and claim SMP? So owner managers (with no staff) just must cease to trade if they want claim SMP?

The 41K "bumping" of salary prior to claiming SMP is well known.  But massive NIC cost surely?

A salary of 10K will mean £5,600 to claim (per the comps we did only Tuesday!). Why don't you file revised RTI reports for April 14 onwards for £835 a month?

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Replying to adam.arca:
Stepurhan
By stepurhan
14th Nov 2014 12:14

The point surely

HeavyMetalMike wrote:
Not allowed to work and claim SMP? So owner managers (with no staff) just must cease to trade if they want claim SMP?
SMP is intended to provide an income to someone when they are not working. The fact is an ordinary employee on SMP ceases "trading" as an employee for the duration. Why should an owner manager be any different?
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Replying to clark.hall:
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By HeavyMetalMike
14th Nov 2014 12:21

Noted, Stepurhan.
Jut seems a tad punitive on those that have their own company, as opposed to employees, normal employees.

Peter - look up SMA which is where, I believe, you might be able to claim, it's for those that get same money but don't qualify for SMP.

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Replying to Wilson Philips:
By petersaxton
14th Nov 2014 17:40

SMA

HeavyMetalMike wrote:

Noted, Stepurhan.
Jut seems a tad punitive on those that have their own company, as opposed to employees, normal employees.

Peter - look up SMA which is where, I believe, you might be able to claim, it's for those that get same money but don't qualify for SMP.

I agree it's something but it's not very much.

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Replying to clark.hall:
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By buttinski
14th Nov 2014 12:24

There is a difference

The employee returns to work.

The owner manager may no longer have a business.

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Replying to DJKL:
Stepurhan
By stepurhan
14th Nov 2014 12:48

Only if they take leave

buttinski wrote:
The employee returns to work.

The owner manager may no longer have a business.

I will acknowledge that is a difference. However, it is only a difference if they take time off in order to receive SMP.

An employee is actually in the same position. They can either take maternity leave, and the associated SMP, or they can continue to work. An owner manager can do the same. If an owner manager has to continue to work to maintain their business, then that business will continue to generate income. If they are working and continuing to generate an income, why should they receive SMP on top of that? SMP is intended to provide an income for someone that would not have one otherwise, not add to an existing income.

In fact, as this query demonstrates, the owner manager is arguably in a better position, as they can manipulate their salary in a way that makes SMP much higher than their "normal" income. They could well be able to afford cover (as an employer has to) and still be better off overall.

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Replying to tonyaustin:
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By buttinski
14th Nov 2014 13:00

But

Although I agree, this ignores the original purpose of SMP.

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Replying to Jennifer Adams:
Stepurhan
By stepurhan
17th Nov 2014 09:20

Please clarify

buttinski wrote:
Although I agree, this ignores the original purpose of SMP.
I believe the original purpose of SMP is to give an income to someone who, due to maternity related absence, would not receive one otherwise. That was clearly stated in my post and equally clearly does not apply to someone who continues to work and earn an income.

Since you say I am ignoring the original purpose of SMP, you are presumably using an entirely different definition. Please explain your view of the purpose of SMP that I am ignoring.

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Replying to adam.arca:
By petersaxton
14th Nov 2014 17:37

NIC

HeavyMetalMike wrote:

Not allowed to work and claim SMP? So owner managers (with no staff) just must cease to trade if they want claim SMP?

The 41K "bumping" of salary prior to claiming SMP is well known.  But massive NIC cost surely?

A salary of 10K will mean £5,600 to claim (per the comps we did only Tuesday!). Why don't you file revised RTI reports for April 14 onwards for £835 a month?

The NIC cost was what we were comparing with SMP in the first six weeks. Revising salary looks very suspicious with SMP coming up!

Now with the dividend the salary at HR looks a lot less efficient.

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By David Heaton
14th Nov 2014 12:29

You're in a minefield

There are so many facets to this question it's hard to know where to begin.

As a director without a regular salary, she is NOT subject to the normal rules of calculation, but she does have to stay away from work if she wants to avoid disqualification from SMP entitlement, except for KIT days.

As she is a director with no regular salary, you don't simply count back eight weeks from the qualifying week, because she has an annual earnings period for NIC, and her entitlement to earnings is determined by the articles.  If she's simply drawing money in anticipation of a future vote, the payments are not earnings for the AWE calculation.  

I'd suggest you Google E15 statutory maternity pay and find the 2013 version of the guidance booklet (it was not published this year, as everything - except what you really want to know, of course - is now online). There's a full explanation of how to handle this SMP calculation and a worksheet.

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By justsotax
14th Nov 2014 12:33

i guess the next question will be

how can I manipulate her income from the ltd company once she has had the baby to maximise the tax credits she can claim...

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By petersaxton
14th Nov 2014 17:56

I agree with a lot of the comments

but I have a duty to maximise my client's income while not breaking the law.

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By petersaxton
14th Nov 2014 19:30

Solution!

When I sat down and did the calculations I found out that her best salary would be the £10,000 that I was going to pay her in March 2015 but I needed to pay her today for her to get SMP - but it's worth it for about £6,000 SMP.

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By orchardacc
15th Nov 2014 21:52

Actual Payment

Just a little contribution, Petersaxton, please make sure when you run the payroll and submitted via RTI, you advise the client to actually pay the net salary to herself has HMRC nay request evidence of payments. We recently had two difference cases.

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