SMP Weekly Average Earning Calculation

[chaobai]

Hi all,

Not sure if this is the correct subforum to put on this question. Just wait and see if anyone happen to have the same experience and know the answer.

I am the director of a ltd company. We just started our business last year and i receive a optimal salary of 476.25 monthly.

The business is going well and now i am in my pregnancy which is due this June and starting to think about the maternity allowance i should apply for. It's called SMP as i know and the company should apply for this and pay it monthly into my account. The total amount of SMP is based on my weekly average earning. According the information from HMRC, the average weekly earning should be calculated based on the total incoming of a fixed 8 weeks from early Jan to late Feb.

The question is I am wondering if I can pay myself a big bonus this Jan to top up my average weekly earning? I want to be careful if it could be against any rules.

[Tom McClelland]

I think you've got the dates wrong. The calculation date is based on before the pregnancy (presumably to stop exactly the kind of shenanigans you're considering)

So you'd have to pay the bonus (and that means really pay it, not make it up after the event) an anticipation of the pregnancy.

EDIT: Actually I'm just checking this...

[chaobai]

Thanks Tom. But what you mention is somehow different from the information i see from DirectGov, which is the same as how the SMP calculator from the employer disc works.....really confused now.

God I wish i could be still employed in the office and don't have to worry about all these stuff.:( But I know I can't have both ways.:redface:

[Tom McClelland]

.... Sorry actually you just need to have been an employee of the company before becoming pregnant. And then the 8 week average is from 15 weeks before the anticipated birth as you probably already knew.

So what you're proposing is probably legal. Whether or not it is moral is a different question I suppose. Effectively you'll get 90% of 6/8 of the bonus as a bung from the taxman, collected from the rest of us taxpayers. (but you will pay tax and NI and employers NI on both the bonus and the bung, so it may not work out quite as well as you hope)

[chaobai]

Thanks Tom. The information helps a lot.

Actually I was looking for prior post regarding SMP calculation for a director to see if this is a common practice for a company director in pregnancy but can't find any so far.

[Tom McClelland]

Thinking it through, the benefit of doing this is quite large, because assuming you're a "small company" within the terms of SMP the company recovers 104.5% of the payment so the total cost of the additional SMP payment is probably only about the 8% of unrecovered employers NI. The fact that the employee pays tax and NI is largely irrelevant because most of that money comes back to the company in recovery.

On the other hand you'll still need to pay the full tax and NI on the bonus, which might otherwise escape those charges if it was paid as dividends.

[chaobai]

I actually made myself a spreadsheet doing calculation which takes all ni, tax, recoverable compensation...blahblah...into consideration..(call me crazy, i do those kind of things when getting bored). And the result suggests I pay as much bonus as I can this Jan. But I do think there is a line of 'being reasonable' here, just don't know where it is...

Anyway, thank you for being so responsive, really appreciate that.

Please also share if anyone has prior experience.