Company directors are entitled to SMP on the exact same basis as any other employee - assuming they were on the payroll at the right time, then they’re entitled to 90% of their normal pay for six weeks, and then at a standard level for the next 33. In practice, the company carries on paying the director’s salary as usual, but HMRC reimburses the company for the majority. But, although the rules are just the normal rules, the different circumstances they’re being applied to leads to some wrinkles:
- More often than not (for sensible tax-planning purposes) a director will be paid a pretty low salary compared to other employees. That means that the first six weeks at 90% of normal pay aren’t actually that exciting.
- SMP is only payable whilst you’re still on maternity leave. Business owners tend to come back to the business rather more quickly than the typical employee (particularly if they themselves are the entire workforce!). After 10 “keeping in touch” days, SMP is no longer payable, and that can happen fairly early on for an owner-director.
- Usually HMRC reimburses an employer for SMP by knocking it off the monthly PAYE payments the employer makes to them. But if the director is the only employee, there might be no such monthly PAYE payments. In that case, by default HMRC will reimburse the company after the end of each tax year, but that could cause cashflow issues in the meantime. If so, it’s possible for the employer to ask HMRC to give it the cash up front, to be dripped out to the director as SMP over the period of leave. That system actually works quite well. Be careful though - if the director comes back to work earlier than anticipated, the company will have to return some of that up front payment to HMRC, and in the meantime the extra lump of money in the company bank account hasn’t really given you any more money to pay dividends or any other costs - else, it’s sitting there to subside the salary over the period of leave.
In general, everything about the system works well - as long as you let your accountant know when you’re going on leave and when you return, anyway!
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