Universal Credit. Self employed with employee on maternity leave

seatbeltnoob

Hi, I just learned that HMRC will pay my business a lump sum for my employees statutory maternity pay. All of this years statutory matenrity pay will be deposited in one go.

My question is how does UC regard this payment? Is it income or is it ignored? It seems a bit unfair for it to be regarded as income all in one month rather than spread out on a montly basis. Does anyone know?

MovingForwards

According to this:

https://maternityaction.org.uk/advice/money-for-parents-and-babies/#:~:text=Statutory Maternity Pay is treated,and is deducted in full.

"Statutory Maternity Pay is treated as earnings for Universal Credit and will be partly disregarded under the work allowance."

seatbeltnoob

I'm asking from the point of view of the employer paying statutory maternity pay to an employee. (HMRC reimburses employer for the statutory element).

I worked out what to do. Use business funds to pay employee their statutory pay, accrue a loss in self employed earnings equal to the SMP and then and then claim for the SMP reimbursement at the end of the maternity.

calcotti

seatbeltnoob said:

I worked out what to do. Use business funds to pay employee their statutory pay, accrue a loss in self employed earnings equal to the SMP and then and then claim for the SMP reimbursement at the end of the maternity.

That HMRC arrangement fits badly with UC. I think you are correct about what happens but if, in the months you are paying out the SMP, your net earnings drop below the MIF you are going to be penalised because of it.

seatbeltnoob

MIF hasn't been imposed on me yet, I joined UC in March 2020 so I am one of those who are last on the list to be interviewed and have MIF reinstated.

IIRC the people who were in UC earliest will get processed first.

I applied for early payment of the statutory payments from HMRC. Then looked at the rules and realised how it's not going to work for me, I need to accrue the loss by paying the SMP first and then taken the SMP payments to plug the losses.

NedS

calcotti said:

seatbeltnoob said:

I worked out what to do. Use business funds to pay employee their statutory pay, accrue a loss in self employed earnings equal to the SMP and then and then claim for the SMP reimbursement at the end of the maternity.

That HMRC arrangement fits badly with UC. I think you are correct about what happens but if, in the months you are paying out the SMP, your net earnings drop below the MIF you are going to be penalised because of it.

I agree. OP would have to declare the funds received from HMRC as income in full in the month in which they are received, and then declare payments made to the employee each month as they occur. UC does a poor job of accounting for uneven cash flows most businesses experience.

As you've received the funds in full from HMRC, is there anything preventing you from paying that in full to the employee upfront on month one, as that would solve your problem if the monies were declared as income and back out in expenses in the same month?

calcotti

NedS said: As you've received the funds in full from HMRC, is there anything preventing you from paying that in full to the employee upfront on month one, as that would solve your problem if the monies were declared as income and back out in expenses in the same month?

But that would potentially pass a problem on to the employee if they themselves are claiming and might be deprived of earnings to set against a Work Allowance over several months.

seatbeltnoob

A few more bits of information.

SMP payments offset your NI/HMRC liabilities. So if you make £500 SMP payment and have a total £1000 NI/HMRC bill, then you'd pay for £500 to HMRC.

Id the SMP is greater than the NI bill, then you can claim for it back at the end of the tax year. Or you can choose to not get it back and leave it as a balance with HMRC ofsetting against any future NI/HMRC payments due.

The only thing you cant do is ask for it in installments.

calcotti

That’s interesting and that’s interesting and the offsetting works well if you have several employees. If you only have yourself and one other employee then I can see you would want to claim money back (or, as you say, store it as a credit against future liabilities).