SMP lump sum taxation

Letsgetorganised

Hi all
I'm currently going through the consultation period for my role which has been deemed "at risk of redundancy". The next meeting is Monday, when I expect my employer to confirm they are proceeding with redundancy. I have researched lots, spoken to a solicitor and contacted various advice bodies including LRA, CAB and HMRC. In all honesty most have been useless due to the complexity of my redundancy.. At 28 weeks pregnant I am due Statutory Maternity Pay and was due to leave for maternity leave in 8 weeks anyhow, so why my employer thinks my role is where the huge savings lie is beyond me. Basically I want to know whether my employer can pay my SMP as a lump sum or can I ask for it to be paid weekly/monthly as would have been the case had they not started this process. If they pay it as a lump sum its taxable income and the tax man is going to take a huge cut.. From my very rough calculations I reckon I'll lose about 10 weeks of the full 39 due to me. This is because of the timing (coming up to the end of the 1718 tax year). By paying my SMP as a lump sum my employer also assumes I will take the full 39 weeks I'm entitled to.. But ironically in doing so I will lose so many weeks SMP that I won't be able to afford taking that long off, so I'll have to find a new job sooner than I would have liked after the baby is born, and then I'll have to repay my employer the "overpaid" amount of SMP despite me never receiving it, thus further reducing how much I have available to spend during my mat leave. Is there anyone who can advise or who has experience of this?!

Dazed_and_confused

I don't understand why you say it will be taxable income if paid in a lump sum? Surely it will be taxable income irrespective of this, the tax consequences being dependent on any other income you get in the (tax) year?

Are either of these any use,

https://www.workingmums.co.uk/advice-and-support/redundancy-money-on-maternity-leave-ask-the-expert/

https://www.gov.uk/government/publications/maternity-benefits-technical-guidance/maternity-benefits-technical-guidance

agrinnall

The complication I can see is that if the entire amount is paid in the 2017-18 tax year it'll have tax applied based on earnings to date in this year, but if most of it would have been paid in 2018-19 tax year otherwise then the tax paid next year might have been less depending on earnings when returning to work during that year. It would likely be better for payment to be made after April 5th.

Letsgetorganised

Yes exactly agrinnall - by paying me a lump sum in the 1718 tax year I'm going to lose a heck of alot more SMP due to the tax. Whereas if my employer paid it monthly or paid the majority of the lump sum after April I will be taxed less (baby is due in April so it's likely I won't start working until Jan 2019)
Is it possible to work out how much I will be taxed next month in order to put this argument to them?

chrisbur

If it is possible to get it paid monthly rather than as a lump sum there will also probably be a saving on national insurance.

Tax/NI calculator here....
https://www.gov.uk/government/collections/how-to-manually-check-your-payroll-calculations

sheramber

https://forums.moneysavingexpert.com/discussion/5666631

badmemory

I'm not sure of the rules on this, but if your redundancy starts before your maternity leave are you sure your co will be the ones paying that maternity leave?

chrisbur

chrisbur wrote: »

If it is possible to get it paid monthly rather than as a lump sum there will also probably be a saving on national insurance.

Tax/NI calculator here....
https://www.gov.uk/government/collections/how-to-manually-check-your-payroll-calculations

Also might be worth mentioning to the employer that there would be a saving for them as well on employer's national insurance, if payments are made monthly instead of as a lump sum.

Letsgetorganised

Thanks all for your responses. I will have to hope paying me weekly or monthly is an option. I just don't know if they'll allow it since they will surely want me off the books as an employee, hence the redundancy.
Since I worked for them past my qualifying week (week 15 before the baby is due) I am entitled to SMP and as far as I'm aware they pay it, but will claim it back from the government.

badmemory

I didn't mean that you wouldn't get SMP just that your employers may not be the ones paying it, or any redundancy may start after the end of the tax year.

chrisbur

Letsgetorganised wrote: »

Thanks all for your responses. I will have to hope paying me weekly or monthly is an option. I just don't know if they'll allow it since they will surely want me off the books as an employee, hence the redundancy.
Since I worked for them past my qualifying week (week 15 before the baby is due) I am entitled to SMP and as far as I'm aware they pay it, but will claim it back from the government.

The actual reclaim figure is either 92% or 103% of SMP depending on the employer's NI paid.
I do not know the exact circumstances here but just to put some rough figures on the employer's NI that would be paid I assume £200 is paid for 6 weeks and then the £140.98 for the remaining 33 weeks. The maths is not exact as would depend how payment was made this is just to give an idea of the possible saving for the employer if they pay say monthly.
On a lump sum payment of £5852 they would pay about £715
Paid monthly the payment would be aprox £17 to £20
This saving comes from the allowance each month that they get before NI is paid, if they pay monthly they get an allowance every month if they pay as a lump sum they get one month's allowance.

This might be enough to temp them to pay monthly.