Limited company director - am i entitled to any maternity benefits??

[MoragSheridan]

Hi,

I am joint director of a limited company with my husband, we only pay ourselves dividends as this is what we were advised to do by our accountant when setting up the business in March 2012. I am a Physio by trade and I work for one main 'employer' but on a self-employed basis and cover other ad-hoc work. I was previously registered with HMRC until February 2012 and paid class 2 NI but this was discontinued when we set up the ltd company.

I am 18 weeks pregnant with our first child, and am now worried that I am not entitled to either SMP or MA as I have not paid NI contributions since February 2012.

I have spoken to many many departments at the tax office and benefits office but no-one seems to be able to answer my queries!

Many thanks for your help

Morag

I thought if you were self employed you could get MA

I didn't think it was dependent upon ni contributions

Are the MA guidelines online not clear?

Contributions must be paid, at the latest, before the end of the second tax year after the year in which they were due.

Does that help?

Do you take a small salary, below the tax and NI threshold? You should do this, as the tax credit on dividends is not refundable, so you are, in effect, missing out on your personal allowance. The salary would also reduce corporation tax, without any additional expense.

I would increase your salary, so that you are eligible for SMP. As you are a director, I am sure you will be able to backdate this, provided you haven't yet submitted your P35 for 2013. Then you can pay yourself SMP, and this is refundable to the company via the PAYE scheme, so doesn't cost you anything.

If you are only "employed" by one company, you may well fall foul of the IR35 legislation. Has your accountant discussed this with you? You may be in a position where you have a large "deemed payment".

I'm not sure you have been given the best advice, TBH.

Hi,

thanks for all your speedy replies. I am no longer classed as self-employed as I am an 'employee' of our limited company according to one person I spoke to in the tax office today so I cant claim MA as self employed person from what I understand.

We don't take a salary as we were advised not to as this was taxable but I see now that this was incorrect advice! We take all money out each month as monthly dividends so there are no payslips etc. I have only been with this particular 'employer' since October, prior to that I was 'self-employed' by a sports body for 3 months and prior to that I worked for a different 'employer' for 8 months as well as PAYE for a second employer (October 2011-june 2012).

I think our accountant may be rubbish and that we may have saved marginal tax taking dividends but shot ourselves in the foot as I am now not entitled to SMP/MA. Is it too late to start paying myself a salary for the remaining 5 months in order to get some MA/SMP in September?

No, it's not too late. You are a director, so vote yourself a directors fee for the 2013 year. Then pay a small, regular salary for the next few months.

I can give salary but I'm posting in bed, so you'll have to wait until tomorrow. The 2012 fee wil be about £7000, and the monthly fee in the 2014 year will be about £630, from memory.

You can take this small salary, and pay the rest in dividends, but do watch out for IR35, as if you fall within that legislation, you will have to make a payment equivalent to the tax and both types of class 1 NI, out of the invoiced turnover.

I too get dividends but all the directors also get a small salary just enough to take us over the NI threshold (think its £642 per month) it means we also get pension entitlements too.

If you have any earnings from self employment you should be paying Class 2 National Insurance unless your self employed earnings are less than £5,595 (2012/13) (or your employed earnings are over the upper limit for main rate Class 1 which is not the case). You don't stop being self employed in job A just because you are employed in job B.

How did you stop paying Class 2 NI? Did you tell them you were no longer self employed, or fill in a CF10 to tell them your earnings were small? Either way, you either could (if your self employed earnings are below £5,595) or must revoke that, and back-pay the contributions. Keep these up and you will be entitled to SMP at £136.78 for up to 39 weeks BUT you cannot work in your employed role while getting it (you can still receive salary and/or dividends though), or in your self-employed role for more than 10 days in total.

Alternatively you can qualify for SMP if you have been employed by the company for at least 26 weeks before the 15th week before the expected week of childbirth - which sounds like some time last December. There are two potential advantages to this:

The amount of SMP you get for the first 6 weeks, which as a small employer is mostly funded by the government, can be boosted by careful planning (the rules complicated) of salary payments.

Secondly, you can continue to receive SMP (and dividends) while working in your self employed job, but note that you cannot get MA if you are receiving SMP.

It is your accountants job to sort all this out really: did you tell them you were planning a baby?

Oh finally note that in order to keep up credit towards the basic state pension at least one of these must apply:

1. You are employed and earning at least £109pw (2013/14) - and your employer is reporting this to HMRC.
2. You are self employed and paying Class 2 NI.
3. You are entitled to Child Benefit for a child under 12.
4. You are entitled to credit in certain other cases e.g. full time care of a disabled child - full details here.

I think you need a better accountant.