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Can anyone explain SMP and the deduction of NI and Tax to me? thanks.

(15 Posts)
MrsMcJnr Thu 26-Jul-07 16:11:23

Think I am being really thick but as a higher rate tax payer, will my Stat Mat leave be taxed at 40% leaving me with about £60/wk? thanks just trying to work out how long I can last before I'll have to go back to work.

Dropdeadfred Thu 26-Jul-07 16:12:38

No I don't think it works that way as it's only what you earn abopve a certain threshold that gets taxed.

How's it going?

LIZS Thu 26-Jul-07 16:12:59

Think so but you may be able to claim some back if at the end of the year your earnigns fall below the higher earnings threshold.

aloha Thu 26-Jul-07 16:14:27

SMP is tax and NI free.

MrsMcJnr Thu 26-Jul-07 16:39:38

Hey Dropdeadfred nice to see you – I’m good thanks, 15+3 and hoping all will go well this time howz you? Thanks for posting.

Thanks LIZS so in future it’s best to get pregnant in April!

Aloha – not the case I’m afraid, http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/Expecting_or_bring ing_up_children/DG_10018741 says

“Maternity Pay is treated as normal pay so your employer will also deduct tax and National Insurance as usual.”

aloha Thu 26-Jul-07 16:43:00

Sorry, you are right. It is Maternity ALLOWANCE that is tax and NI free.

MrsMcJnr Thu 26-Jul-07 16:48:10

sorry about that big space - it wasn't there for suspense

BetsyBoop Thu 26-Jul-07 20:19:45

Whether or not you end up paying higher rate tax on it depends on your total income for the tax year.

Depending on when in the tax year you finish work, you might be taxed at 40% initially & then get a refund in later months as the money you have coming in drops. If you are on PAYE with your employer this should happen automatically.

rozzyraspberry Thu 26-Jul-07 21:06:07

At 15 +3 I'm assuming your due in January. Under PAYE each months tax charge is calculated by using earnings to date in that tax year (ie 6th April - 5th April)and working out the tax payable in full year and therefore that months charge. eg if your earnings in April were £3,000 the system would calculate that your full years earnings would be £36,000 and would work out the tax that was therefore due. If say you went on maternity leave in December you will have paid tax to that date on the assumption that you would continue earning at that rate for the full tax year. As that won't be the case you probably won't pay that much tax once you get down to the £112 (or whatever it is at the moment) per week and will probably get a bit of a refund before the end of the tax year. In the new tax year when you will be starting off at this lower rate you definitely won't be paying a higher rate tax on this as the calculation won't take your prior years earnings into consideration but will just assume you'll continue to earn at a rate of £112 per week for the entire year.

Also its important to remember that although you are a higher rate tax payer not all your earnings are taxed at 40%. You have your personal allowance which is tax free, the next £x is at 10% and then the remainder up to the higher rate band is at 22% so you definitely would not be left with only £60 per week (sorry not that up to date on the actual allowances and bandings at moment)

I hope this makes sense - I know what I mean but probably not very good at explaining it. I'm currently 12 weeks pregnant and also calculating how much time I can afford off. However, you don't actually have to give a date of return at this point. Your employer should just assume you'll be off for the full year unless you give notice (I think 8 weeks) that you'll be returning earlier.

Good luck

iwillbepgbydec2007 Thu 26-Jul-07 23:42:27

sorry to hijack your thread mrsmcjnr

but....

is it also true that if your employer is paying your maternity leave you have to return to work after the 9 months for atleast 6 months otherwise they can claim back from you the money they have paid out?

i have heard this from a few people but i just cant believe it as you cannot see into the future about your situation ie childcare.

thanks xx again sorry mrsmcjnr

LIZS Fri 27-Jul-07 08:11:55

iwillbepgbydec2007 , anything over and above SMP, plus cash paid in lieu of contractural benefits (like a company car) where applicable, can be made conditional upon returning to work for a specified period. Payments over and above SMP and contractural benefits are discretionary and will vary from one company to another. There is no standard practice regarding timescales , other than that SMP(and cash for benefits) is yours to keep regardless of whether you return or not. However for any repayment of discretionary payments over and above these to be enforceable the condition must be clearly stated when you go on ML. OML is now 6 months plus AML of 6 months , so you can take up to a year now before having to return. hth

MrsMcJnr Fri 27-Jul-07 11:58:02

BetsyBoop – thanks that’s what I am worried about! I should finish work at the end of December as the baby is due mid Jan.

Thanks Rozzyraspberry – EDD 15/1. That really helped Congratulations on your pregnancy

Iwillbe – no worries. I guess the answer to your question depends if it is contractual benefit over and above SMP or not. If it is SMP then no, that isn’t correct. You get paid it even if you don’t go back and you don’t need to repay it.

LIZS – you know lots!

iwillbepgbydec2007 Fri 27-Jul-07 12:35:59

thanks for your help,

from wat i can gather i am only going to be getting smp. i have made an appointment with the personel manager at work to clarify everything.

hope you get your answers mrsmcjnr

iwillbepgbydec2007 Fri 27-Jul-07 12:36:00

thanks for your help,

from wat i can gather i am only going to be getting smp. i have made an appointment with the personel manager at work to clarify everything.

hope you get your answers mrsmcjnr

ELB1 Tue 07-Aug-07 17:42:45

Hi all,
I can try to clarify.
Statutory Maternity leave and pay (SMP and SML) changed this year in April. All employed women are now eligible to a maximum of 12 months maternity leave regardless of length of service. This is made up of 26 weeks Ordinary Maternity Leave (OML) and 26 weeks Additional Maternity Leave (AML). During OML you retain certain rights such as the right to return to your normal job - these rights reduce during AML. To qualify for SMP, you must meet certain qualifying conditions that are based on your service and pay in the weeks before your 15th week prior to due date (e.g. you must have paid enough NI). If you have this, then you are entitled to 39 weeks SMP which is made up of 6 weeks paid at 90% of your earnings or £112.75 per week whichever is the higher followed by 33 weeks at £112.75 per week or 90% of normal earnings whichever is the lower. Your employer may have a policy to top up these statutory payments to higher levels - even if for short periods of your maternity leave. Any such top up is discretionary and they can ask for additional payments to be returned if you don't meet their requirements over your return to work - but you should be notified of this in advance.
SMP is classed as normal earnings - so is subject to all your normal deductions. Each tax year (April 6th to April 5th next year) employees typically have a tax free personal allowance of £5035 per annum before paying any tax (although this can be reduced by employer benefits such as medical cover or a company car or previous tax underpayments - Your PAYE Coding Notice will explain), then the next £2150 is taxed at 10%, earnings from £2151 to £33300 are then taxed at 22% and anything after that at 40%. So - depending on how much you have earned in the tax year to date when you go on maternity leave will determine the amount you will be taxed according to these tax bands. In addition, most employees will pay 11% National Insurance plus a further 1% for earnings above £33300 - although again this may vary if you are in contracted out pension schemes for example.
All that said, your tax is usually worked out each pay period (the frequency of when you get paid) based on your earnings for that period being your "expected" earnings for each month in the tax year. So the simplest way to get a rough guide as to what you will take home when you go onto maternity pay is to take your current gross pay, deduct your current net pay, then divide the difference into your current gross pay giving you an overall percentage. Then work out what your maternity pay will be based on SMP plus any company entitlements, and deduct this percentage from that.
E.g.
Normal gross pay per pay period is £1000
Normal net pay per pay period is £650
£1000 - £650 = £350
£350/£1000 = 0.35 (35%)

4 weeks SMP at £112.75 = £451
£451 x 35% = £157.85
£451 - £157.85 = £293.15

If you want more accurate and personal forecasts, you should talk to your employers payroll department - but note they don't have to do this, so may be reluctant!

There are a couple more things to remember. Firstly - SMP is paid in weekly amounts - so if you are used to being paid monthly - you will see your pay change to being paid in sets of weeks. Most payroll departments handle this by paying you 4 weeks, then 4 weeks, then 5 weeks in a 4, 4, 5 week cycle until you run out of SMP or return to work. So you will see your SMP fluctuate a bit rather than a steady monthly amount you may be used to.
Secondly - if you are starting your Maternity leave part way through a tax year, especially if you are a higher rate tax payer - then you may end up overpaying tax and will see any overpayments reflected in your coding notice for 2008 effectivly giving you a higher tax free personal allowance. It will all work out in the wash!
finally - note that the rates and limits I have provided are all related to the current 2007/08 tax year, and will change in April 2008.
For extra help government web sites are pretty good:
www.hmrc.gov.uk for tax and NI
www.berr.gov.uk for SMP and SML

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