Statutory Maternity Pay for Directors - advanced funding
Posted on 23rd April 2020
Becoming a parent is such an exciting time in life, though it can be scary too - and that's before all of the financial considerations come into play. As a limited company director, when you find out you are going to have a baby or adopt a child, you can apply to be funded in advance for your statutory pay.
So how does it work?
Financial help from HMRC is available to small businesses when they require assistance with their cash flow for making statutory maternity, paternity, adoption, and shared parental payments to employees, and that includes directors. At present, this is up to £6,074 if you or your employee is entitled to 39 weeks at the statutory maternity pay (SMP) rate of £151.20.
Any of your limited company’s statutory payments (except for sick pay) would normally be offset against the company's PAYE liabilities. However, you can apply for advance funding from HMRC if the total of your PAYE deductions for income tax, National Insurance Contributions (NICs), student loans and so on is less than cost of the statutory payments you are required to make.
How can you apply?
We can help with this - just get in touch and mention this blog post. You can also do this yourself, if you prefer.
First of all, you need to ensure that your application for SMP is made no more than four weeks before the first statutory payment is due. HMRC may return your application and ask you to reapply if you apply sooner than this.
To ensure you can make the application, you’ll need to provide HMRC with your MATB1 form - you can use the original copy or a scanned one. To obtain an MATB1 form, you will need to see your GP or midwife for this on/ or after the baby's 20 week scan.
You will also need to confirm the date you or your employee wants to start your/their leave. You will also need to note that, even if you receive an advance payment from HMRC, you will be required to use payroll software to send an Employer Payment Summary (EPS) plus a Full Payment Submission (FPS) if you reclaim statutory maternity, paternity, adoption or shared parental payments for yourself or an employee.
Be aware that you could be charged up to £3,000 per employee for each tax year if any information in application is incorrect.
What are directors and employees entitled to by law?
Eligible employees can take maternity leave for up to 52 weeks. The first 26 weeks of leave is referred to as ‘ordinary maternity leave’, and the last 26 weeks is 'additional maternity leave’. Any mother-to-be can commence their maternity leave from as early as 11 weeks before the due date, unless of course the baby is born early.
It is a legal requirement that employees take at least two weeks leave after the birth of the baby, or four weeks if they’re a factory worker.
Statutory maternity pay (SMP) can be paid for up to 39 weeks, usually per the following:
90% of their average weekly earnings (AWE) before tax for the first six weeks of maternity leave
£151.20 for the 2020/21 tax year or 90% of their AWE (whichever is lower) for the remaining 33 weeks of maternity leave
Bear in mind that income tax and NICs still need to be deducted.
Small employers who qualify for Small Employer’s Relief can normally claim 103% of employees’ SMP, paternity, adoption and shared parental pay. If your business paid more than £45,000 in Class 1 National Insurance payments then it won’t qualify and you will normally be permitted to reclaim 92% of the payments.
Statutory paternity leave and pay
If you or your partner is having a baby, adopting a child or having a baby through a surrogacy arrangement, you may be eligible for statutory paternity leave and pay. Directors and employees can take either one or two consecutive weeks’ paternity leave even if they have more than one child at the same time (twins, triplets etc) this remains the same.
Paternity leave must commence after the birth. The start date must be the date of birth or date of placement for adoption, an agreed number of days after the birth or placement for adoption or an agreed number of days after the expected week of childbirth.
For adoptions, paternity leave can start on the date of placement, on an agreed number of days after the date of placement or on the date the child arrives in the UK or an agreed number of days after this if an overseas adoption.
For surrogacy arrangements, leave can start the day the child was born or the day after.
Leave must finish within 56 days of the birth, or the due date if the baby is early.
Statutory paternity pay for employees and directors is £151.20 for the 2020/21 tax year, or 90% of their AWE if lower. As with SMP, tax and NICs need to be deducted.
Next steps
Feel free to get in touch with us today to see how we can ease your accounting headaches - you really don't need extra hassle while you're preparing to become a parent and it can be a complicated topic!
Feel free to give us a call or drop us an email. We’ll be more than happy to help advise you, taking your individual circumstances into consideration.
Written by
Nicola J Sorrell -
Effective Accounting
Founder | Xero Champion | IR35 Expert
Tagged as: For - Employers
Share this post:
