Maternity pay as a limited company - query

[tkmk]

Hello,

My partner is currently looking at becoming a contractor and like me is a total newb. We are currently trying to understand how maternity cover works for a contractor working as part of their own limited company. We have done some research but are very confused by it all. So...

1) Will she be eligible for maternity pay?
2) If so, how does it work? We've stumbled across 'SMP ' on a few sites
3) Where does the money come from? Is the government paying or will it be funded from her own limited company

Assume we are not too knowledgeable so explanations 'for dummies' would be much welcomed

Thank you in advance for your help!

[Jessica@WhiteFieldTax]

In haste:

1 - more than likely yes, if not maternity benefit which is similar but not taxable.

2 - SMP is a scheme to ensure employers pay their staff for a period of maternity. Remember your wife is a employee of her Company, ergo the scheme applies to her.

Best source of info is direct.gov

Statutory Maternity Pay : Directgov - Money, tax and benefits

Put simply its pay for 39 weeks. 6 weeks at 90% salary, 33 weeks at lower of 90% salary and £135

In this context, salary is what your wife pays herself as salary from her company, it isn't, of courses, her contract income. And it's salary only, not dividends.

I did a post in this forum about salary levels for SMP a few days ago. If you can't find it let me know, and I can give you a link to similar info on my business website.

SMP is subject to employers and employees NI, and Income Tax.

3 The government will reimburse to your company, 103% of the pay AFAIR, the 3% beng towards employers NI.

Best way to think of it is:

~ a government mandate scheme for businesses to continue to pay staff on maternity
~ with a reimbursement scheme from govt to business.

[northernladuk]

Good answer from Jessica but here is a list of all the threads where maternity has been covered before including all questions, attempted fudges, you name it.

maternity site://forums.contractoruk.com/accounting-legal/ - Google Search

I would expect by the time this comes round you will have an accountant at this point and they can advise you what to do.

[tkmk]

Hi guys, thank you! I appreciate the fast responses. Looks like we'll both need to read through the old threads, check out Jessica's link and then clarify our understand with an accountant.

Thanks again!

[Martin at NixonWilliams]

Hi guys, thank you! I appreciate the fast responses. Looks like we'll both need to read through the old threads, check out Jessica's link and then clarify our understand with an accountant.

Thanks again!

Hi,

The link provided by Jessica contains everything you need to know about how SMP works. However, you should be aware that the funding for one person contractor companies is usually obtained in a different way to that of a company with a number of employees.

To clarify, a company will normally obtain the SMP funding by deducting the SMP reclaimable against the PAYE/NI deductions of other employees within the company. However, a contractor company with only one employee (who is outside of IR35) will have very little or no even PAYE/NI to pay and therefore it has no liability to offset the SMP against. In this situation it is advisable to request the funding to be paid direct from HMRC using the following link:

https://online.hmrc.gov.uk/shortform...ww.hmrc.gov.uk

I hope this helps.

Martin

[Jessica@WhiteFieldTax]

Hi,

The link provided by Jessica contains everything you need to know about how SMP works. However, you should be aware that the funding for one person contractor companies is usually obtained in a different way to that of a company with a number of employees.

To clarify, a company will normally obtain the SMP funding by deducting the SMP reclaimable against the PAYE/NI deductions of other employees within the company. However, a contractor company with only one employee (who is outside of IR35) will have very little or no even PAYE/NI to pay and therefore it has no liability to offset the SMP against. In this situation it is advisable to request the funding to be paid direct from HMRC using the following link:

https://online.hmrc.gov.uk/shortform...ww.hmrc.gov.uk

I hope this helps.

Martin

Good point, Martin.