In the first of an occasional series, Mahmood Reza looks at the tax treatment of parents.
Parental support is given through the tax system in a number of ways. This article will focus on three schemes, namely statutory maternity, adoption and paternity pay. All of these schemes share common features for employee and employer alike: employees have to meet certain qualifying conditions, and the employer has a number of legal obligations placed upon them.
Statutory maternity pay (SMP) is granted to the expectant mother, statutory adoption pay (SAP) is granted to the adopter, and statutory paternity pay (SPP) is granted to the partner who assumes responsibility for the bringing up of a child (newly born or adopted). It is worth noting that there is no gender bias in the legislation and that statutory adoption and paternity pay is theoretically available to same-sex couples. All of the schemes mentioned are effectively aligned in terms of the main qualifying conditions, which are, first, a minimum length of employment ? at least 26 weeks prior to a critical date ? and, second, minimum earnings ? a weekly gross average of £82. SAP and SMP are paid for 26 weeks. A full-time employee pay would be £106 per week under SAP; under SMP, 90% of average weekly earnings for the first six weeks and then £106 per week for twenty weeks and under SPP £106 per week for up to two weeks.
An employer?s responsibility is to administer, comply with and make the necessary payments under the schemes ? a failure to do so will usually result in civil penalties. An employer can recover payments made from the Inland Revenue. If they are a small employer (annual NIC under £45,000) then in addition to a full recovery an additional 4.5% will be paid by way of compensation. If an employee is claiming working tax credit then time taken off under these schemes will be treated as being in qualifying remunerative work and payments made will be treated as employment income (and thus taxable).
As with any aspect of PAYE operation, employers need to be aware of the detailed qualifying conditions and the range of forms to be completed, and have effective internal systems in place. In the main, it is relatively straightforward, and the Inland Revenue can always be approached for more help.
Mahmood Reza is Proprietor of Pro Active Accounting.
t: 0116 224 7122; e: info@paa.uk.com