Limited company director/ Maternity pay

[babynelly2010]

Hello,

I have a ltd company. I am an only employee and work and provide consulting services in the construction industry.

I pay myself minimum salary a month (something like £620 a month) and than the rest I take out in dividends 2-3 times a year. I am now pregnant with a baby number 2 due in August. I know I qualify for SMP according to my accountant.
I read somewhere that some people pay themselves bonuses in the trial period when the maternity pay amount gets determined. For me it will be in March.

Anyone here did that? How exactly does it work. Do you end up saving money on taxes anyway or do you get tax later on because you gave your self a bonus?

Any advice from ltd directors or anyone who knows is welcome. Thank you!

I also thought of another solution...
Because my trial period is between march and may I could pay myself a salary for the rest of the year in the trial period after april when the tax year ends. That way I pay myself the maximum amount allowed for the year but most in the trial period that will determine my pay for the maternity leave and the first 6 weeks which are the most important.

Anyone knows if that is allowed?

Speak to your accountant.

But don't be surprised if what appears to be a massive free gift from HMRC turns out not to be worth as much as at first seems.

To get any net benefit at all you need to time the last 2 or 3 payments before the qualifying week exactly, and then the additional SMP for the first 6 weeks is the maximum of 6 / 8 x 90% i.e. 67.5% of the bonus paid.

And because you are taking income as salary rather than the more tax-efficient dividends there is Employers' and Employees' NI to pay as well as income tax on both the bonus and the SMP.

For a basic rate taxpayer, the maximum overall increase in net income is 17% of the bonus; for a higher rate taxpayer less than 8%.

Bear in mind also that doing any work for your company (on more than the 10 KIT days) whilst receiving SMP turns what was an efficient tax strategy into fraud.

Wise words from Mr A as usual, especially regarding the working during your SMP period!

A useful tool for calculating SMP and your qualifying paying dates can be found at www.gov.uk/maternity-paternity-calculator

May I also add that you will most likely be able to claim an additional 3% on top of the SMP amount each month as compensation.
It is also possible to apply for funding from HMRC for SMP where PAYE is insufficient to make deductions for the SMP from: www.hmrc.gov.uk/paye/employees/statutory-pay/funding.htm

Your Accountant will be able to advise you on all of this (it's what you pay them for after all!)

Hope that helps :o)

I explored this last year. The details were in form E15 on the HMRC website. There are different criteria depending on when you became incorporated. I was pre 2009 and my maternity pay was calculated based on my income between the dates of my last 2 company account submissions. I was unable to inflate my pay once pregnant....
HMRC were very helpful when i called to ask for guidance.

"HMRC were very helpful when i called to ask for guidance."

It's a shame they weren't helpful enough to advise you to adopt the so-called Companies Act 2006 Model Articles (actually issued in 2008) so that SMP would be calculated using the more favourable method I summarised below :(

HMRC help you pay tax, accountants help you save it.

what they gave me false information! I'll run this thread past my accountant as I'm planning another maternity leave this year!

Just checked -the 2006 model articles is only relevant to companies incorporated pre October 2009. The method is time dependant as i mentioned in my first post.

*post 2009

No, the rules about Statutory Maternity Pay are NOT dependent on when you incorporated your company. I know that's what it says in HMRC guidance but it is wrong.

The way you calculate SMP for a director depends on the provisions in the articles for awarding directors remuneration. If the articles say that the directors are entitled to set their own remuneration then SMP uses the dates remuneration is paid but if the articles say that the amount of directors remuneration is determined by an ordinary resolution of the company then it is the dates of those resolutions that count.

Prior to the Companies Act 2006 articles becoming the default articles on incorporation of a company in October 2009 the default articles were known as Table A, which provided for directors remuneration to be determined by an ordinary resolution of the company. However if the articles of a company incorporated prior to October 2009 are amended so that the directors determine their own remuneration then the more favourable actual payment dates rules apply.

thank you for explaining that! i'll show it to my accountant.