Maternity Pay versus Maternity Allowance

IamJen

So, the bean's just 11 weeks away now, and my employer and I are hoping to work out maternity leave this week, to start around the 1st of October.

I'm about 95% sure that I'm not going to return after the baby's born, but register as a childminder instead. So, I have to decide whether to take SMP or just quit and take MA.

I was researching to make sure I'm eligible for MA (wife of a Norwegian citizen residing here permanently), and came across information suggesting that MA is not taxable, but SMP is.

DirectGov didn't say anything about tax status of SMP, but HMRC's site says that it is taxable. Both sites say that MA is not.

So, I'm wondering if anyone know if this is correct. Since I will have worked like half of the year before taking time off, I'd have earned enough to have to pay taxes, so if MA is really tax free, then the decision is pretty simple as it would mean something like an extra £100/month.

This seems like a pretty big loophole to me, so want to find out for sure.

csh_2

No tax on MA. SMP is taxable but you will not have enough of it to pay tax on. The way tax is worked out it will not matter how much you have earned as the tax allowance is split over the months. ie you pay tax on earings from April, you don't have 3 mths tax free. Very bad way of explaining things sorry!
I was on £30k when I went onto SMP the most tax I paid was £1 and that was because payroll worked that one on a 5 week month.

SMP is paid at 90% of salary for the first six weeks then the £127ish a week and MA is paid at the same rate for the full 39wks so if you have a decent salary you will be loosing 6 wks almost full wages. Don't forget you accrue holidays on Mat Leave whether you return or not so it makes sense to resign at the end of mat leave rather than before.

chrisbur

Just quitting is not an option, if you qualify for SMP then it is still payable by the employer even if you are no longer in their employment. From the employers' guide
"If a woman has qualified for SMP from you then you are still liable to continue to pay SMP to her where she leaves your employment for whatever reason including redundancy. "

The reasons for not paying SMP are listed on Part D of this form....
http://www.dwp.gov.uk/advisers/claimforms/smp1_print.pdf

Which payment was better assuming that you could choose would depend on what your earnings will be this tax year and next tax year along with details of what you SMP rate (90% average earnings over eight weeks ending in qualifying week) would be.

[Deleted User]

Brilliant advice in both posts above, nothing much to add but just to clarify what Chrisbur said, there is no choice if you qualify for SMP you will not qualify for MA.

IamJen

@ Chris. I know someone who was made redundant (a whole bunch of people at her job were), and she was ineligible for SMP, but took MA. This is what I thought would be my situation as well. No current job = MA?

@csh, I'm not sure that's how the tax thing works for me? I contacted NannyTax, who does the payroll/NI, all that jazz for the family. If I've earned more than £6400ish (can't remember the exact figure), then I would have to pay tax on everything I earned through SMP because I'd be over the personal allowance. This was why I was querying. If I paid tax for 25 or 26 weeks on the standard rate (about £128), it adds up to 600 or 700 pounds!

Oi. This is harder than choosing a name!

csh_2

IamJen wrote: »

@ Chris. I know someone who was made redundant (a whole bunch of people at her job were), and she was ineligible for SMP, but took MA. This is what I thought would be my situation as well. No current job = MA?

@csh, I'm not sure that's how the tax thing works for me? I contacted NannyTax, who does the payroll/NI, all that jazz for the family. If I've earned more than £6400ish (can't remember the exact figure), then I would have to pay tax on everything I earned through SMP because I'd be over the personal allowance. This was why I was querying. If I paid tax for 25 or 26 weeks on the standard rate (about £128), it adds up to 600 or 700 pounds!

Oi. This is harder than choosing a name!

Do you not PAYE? Do you have tax free pay at the start of the financial year and use all your allowance? Your personal allowance is usually divided over 52 weeks of the year, so each week your first £120 odd is tax free and you are taxed on your income above that. I have never heard of a tax allowance being used up with someones first £6400 (or whatver it is now) of earnings

eta: there could have been a few reasons for your co-worker not being eligible for SMP such as being made redundant before 25 weeks and not earning enough to qualify. I am employed but will be claiming MA as I don't earn enough to claim SMP

chrisbur

IamJen wrote: »

@ Chris. I know someone who was made redundant (a whole bunch of people at her job were), and she was ineligible for SMP, but took MA. This is what I thought would be my situation as well. No current job = MA?

@csh, I'm not sure that's how the tax thing works for me? I contacted NannyTax, who does the payroll/NI, all that jazz for the family. If I've earned more than £6400ish (can't remember the exact figure), then I would have to pay tax on everything I earned through SMP because I'd be over the personal allowance. This was why I was querying. If I paid tax for 25 or 26 weeks on the standard rate (about £128), it adds up to 600 or 700 pounds!

Oi. This is harder than choosing a name!

Re redundancy - Assuming that this person's employer was doing everything correctly then either the redundancy must have occured before she was entitled to SMP or she failed to qualify for some other reason. Without full details cannot tell.

The qualifying week for SMP is 15 weeks before the baby is due which as I understand it that time has passed so whether you qualify or not has been decided. As I said there are other reasons that can cause you to fail to qualify they are on the form that I gave a link to.

Re the tax you are correct on this although the current figure is £7475 assuming normal allowance, so the figures you worked out are a bit lower than would be. As your payments would continue into next year the same would apply, provided that after mat leave you continued working and used up your full tax allowance (may be more than the £7475 next year)

MrsGSR

I'm assuming then you are a nanny? so if you are paid through nannytax then all your tax and NI contributions will be sorted so your employer doesn't have to wory about it and neither do you.
In all honesty you are better taking SMP than quitting and taking MA (which as I understand it you only get if you are not entitled to SMP which I would say you are)
I was a nanny some years ago and when I left in the next tax year I got a huge rebate cos I had been paying too much which was nice.
Also when you go on maternity leave you are not compelled to RTW, if you are a teacher say and you sign to say you want the enhanced pay with SMP then you would have to go back for 13 weeks to pay it off for example, I don't think this is restricted to just teaching though and may be the same for other industries.
SMP and MA is a minefield, and pregnancy confuses your head enough as it is!

IamJen

Thanks for the advice. I had an interesting phone experience yesterday. Called HMRC and they said, "um....." that I should call JobCentre, who said their advice sheet said to call HMRC!

The qualifying week thing seems to be the kicker...so I'm with SMP no matter what my work situation is now. I will likely get some money back from overpaying taxes in the first 6 months of the tax year. The disparity in the requirement to pay taxes still boggles my mind.

I spent plenty of time thinking about where to give birth, where baby's going to sleep, what nappies to use, etc. Only recently did I start contemplating the joy that is maternity leave, registering the birth, applying for two citizenships, etc. Oi.