Maternity Pay & 40% Tax

[Redbird12]

I am trying to start planning financially for when I go on mat leave next summer as I am the main earner in our household. I get 6 weeks full pay & then 26 weeks of statutory SMP. I am normally a 40% taxpayer. DP is self employed and his earnings are currently minimal as he has only had his business for 1 year. My questions if anyone can help are:

• Exactly when does child benefit stop for 40% taxpayers, unclear from searching on internet if it is April 2012, Jan 2013 or April 2013? If it is during tax year 2012/13 would I still be entitled to claim that year as although I would normally pay 40% tax, I don't think I will earn enough if I am on SMP for 26 weeks of the year?

• As I am a 40% taxpayer normally, will HMRC continue to deduct 40% tax from me on SMP, child benefit, company car etc even though I probably won't have reached 40% threshold by end of tax year as they will base it on initial salary at the start of the tax year? Is there anyway to prevent this as don't think we can wait till end of tax year to claim the extra I have paid back?

• Is there anything else I am entitled to during the 6 months we will just be living on SMP assuming DH is still not earning much by then?

I appreciate we are lucky to have one salary over 40% tax threshold anyway, just trying our best to plan for the massive drop & understand exactly what we will receive. We are already planning to take a 'mortgage holiday' for 6 months (we have a flexible mortgage that allows this) and I will be saving as much as I can between now & next summer but I am still concerned how we are going to even pay for the basics during this period. I know it was our decision to have a child but like most people I don't think there would ever be a good time financially for us when I am the main breadwinner and my work does not offer much more than the statutory minimum in terms of mat pay. If we can understand exactly what we will receive, it will help with the planning & saving

1. CB is going to stop for higher rate tax-payers most likely from April 2013
2. If you advise HMRC that your salay is reducing substantially for 26 weeks and can give them an accurate estimate of your total year's income then they should be able to give you a revised tax-code on that basis. If you are a salaried employee, your wages department could help out as well. Either way, make sure you complete a self-assessment form at the end of the tax year so that you square it all away and get any rebates due.... IME PAYE is not good at dealing with temporary ups and downs.
3. For what else you may be entitled to - and don't be too optimistic - check out the benefits calculator at Turn2Us.org.uk

Saving up and rescheduling the mortgage are both good things to do in the circumstances. If you can reduce your other regular outgoings, budget more tightly on food and get used to a more modest lifestyle in general, that's also good preparation. You may need to think about setting a deadline on DH's business venture as to when you will decide if it's a success or failure. Being the sole wage-earner in my family, I know just how stressful it is to have the entire family finances on one person's shoulders. If it's any consolation... the first few years are by far the most expensive and require the most sacrifice.. Gets much better once they're in full-time school.

Sorry but i totally disagree with cogitos's advice above

1. CB prob won't stop for higher rate tax payers as the proposed schemes are unworkable. It may do so don't depend on the £20 a week but i doubt it and its unlikely to cease before you go on maternity leave so you'll be able to claim.
2. Tax deduected through PAYE is calculated on a cumulative basis so you will automatically get any tax back so that it ends up being right at the end of the year, you don't need to contact hmrc. Exceptions where you would need to contact hmrc is if you are not going to be provided with you company car during maternity leave so you need tax code adjusting, you are on a M1/W1 tax code, you are on a D0 tax code.

1. You may as well put in a claim for tax credits. The way these work you are awarded an amount based on the prior year and then this gets reassesed after the end of the tax year based on yours and your partners actual earnings. It is better to apply and get a nil award than not apply because this means that if after the end of the tax year your earnings end up being less you will get the award recalculated over the full year.

I agree that it doesn't seem (at the moment) that CB is suddenly going to stop being paid to HR tax payers - there has been suspiciously little said on it since it was announced in October? 2010.

In terms of tax, I have various jobs I do on an irregular basis (semi seasonal work) and when I do more work I am taxed more but then in a month where I do less then I sometimes get a tax rebate, so it is done cumulatively and it should get adjusted from when you start being on maternity leave rather than uou needing to wait until the end of the year. The part where you may lose out is on NI as this isn't done cumulatively, but it is possible to put in a claim for over payment I think.

I agree CB may not stop, we haven't heard enough. Although it could be as simple as being required to phone a number and declare it.

HMRC recalculated my tax a few months after my salary dropped and gave me a rebate but if I'd called them I think they would have done it sooner.

Thanks for all the advice. I will talk to payroll at work before starting mat leave and if necessary call HMRC as we can't really afford to wait until the end of the tax year to get the rebate, ideally need the tax code recalculating asap after i stop working.

I thought the whole CB issue had gone quiet but either way it looks like I will definitely get it whilst on mat leave during financial year 2012/12 & will assume worst case scenario that it will stop April 2013.

Your tax code is unlikely to need adjusting because it doesn't tell your employer what rate to use (unless it is one of the unusual codes BR, D0, D1 or NT which would only be the case if there are some earnings you are not telling us about ).

As your earnings drop, the rates of tax used will adjust automatically taking into account how much you have earned for the year to date (unless you are taxed on a Month 1 basis, but even if you are currently you won't be by the time you are on ML because Month 1 status is reset at the end of the tax year).

However once your SMP stops if you are not going back to work before April you will probably be due a rebate, although it won't be much and you can't claim until you reach that point anyway.