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SMP for company secretary without contract

Statutory Maternity Pay for husband & wife company

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Husband and wife company 50/50 shares. Husband is director and wife is secretary only. Neither have have written employment contract and both are paid salaries at the personal allowance of £11k pa.

There is no contact so as to avoid NMW requirements and company has also therefore declared itself exempt from Auto Enrolment (maybe slightly controversial re co secretary - but not so contraversial per TPR - I'm happy with that).

Question 1: According to why is wife NOT entitled to Statutory Maternity LEAVE (because of no employment contract) and what does that mean being that she IS entitled to Statutory Maternity PAY? Will the apparent contradiction cause wife / company any problems?

Question 2: Considering the above circumstances are there any problems to be aware of if the company chose to pay wife bonus of say £5k 8 weeks before the Qualifying Week (or 15 weeks before the baby is due)?

As a small employer that qualifies for Employment Allowance the only cost of the bonus is employees NI £600 (£5k x 12%) which increases SMP by around £3k.

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Euan's picture
By Euan MacLennan
22nd Feb 2017 14:51

"Oh! What a tangled web we weave, when first we practice to deceive."

I would be surprised if any H & W companies had written employment contracts with the husband and wife.

However, directors are not subject to NMW (more likely NLW) in any event on the grounds that they are "office holders". If you are happy that company secretaries are not subject to AE on the same basis, you must be happy that they are not subject to NMW/NLW.

I believe that TPR is wrong in law about company secretaries being exempt from AE. Although s.90 Pension Act 2008 specifically exempts directors from being "workers" in most cases, I cannot see how company secretaries without employment contracts are not "workers" under s.88(3)(b). If I recall correctly, the TPR view was based on a company secretary who is paid an occasional fee of a reasonable amount for company secretarial services only - £11,000 a year is not a reasonable amount for such duties.

To answer your questions:
1) The wife on a salary of £11,000 a year is entitled to Maternity Leave and to SMP for the first 39 weeks of that leave.
2) No problem (apart from paying £16,000 in a year to someone whom you think is exempt from AE and perhaps, justifying the deduction from CT profits in terms of the work actually done). I haven't checked, but I assume that the bonus will fall in the specified period for calculating average earnings. However, I am surprised that a £5,000 bonus will increase SMP by £3,000, bearing in mind that SMP is paid at 90% of average earnings for only the first 6 weeks.

Why not keep it simple? Make the wife a director.

Thanks (1)
Replying to Euan MacLennan:
By chewmac
22nd Feb 2017 15:56

Thanks Euan for your comprehensive reply as a well respected contributor. And, yes, I'll have to double-check my figures.

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Replying to Euan MacLennan:
By Duncan Cameron
22nd Feb 2017 18:55


Re your third para, directors' pay can be be subject to NMW if they have, in the words of the DTI in a memorandum to the ICAEW, "an explicit employment contract". See Taxguide 7/00.

More generally:

The query seems to be an example of the baby bump plan, "tax avoidance" that is so far beyond the pale that David Heaton had to resign when he suggested it! This suggests that, at the very least, Chewmac should consider the latest version of Professional Conduct in Relation to Taxation and the controversial section therein on tax avoidance. Although, he may conclude that enhancing/creating entitlement to state benefits is not "tax avoidance".

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Replying to Duncan Cameron:
By chewmac
23rd Feb 2017 08:42

Thanks Duncan, interesting reading re Heaton. Tax avoidance hadn't been the intention. Seems sensible certainly not to sell or advise of this.

The question, although not asked, had ocurred to me - "where's the ceiling here?". Seems crazy there isn't one.

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