Statutory payments

When can an employer recover all of the SMP and other statutory payments paid to employees?

The rate at which employers can recover payments of SMP, SPP and SAP is currently 92%.  This means that 92% of the statutory payments made during a tax month (6th of one month to the 5th of the next) can be deducted from all of the payments due each month or quarter to the HMRC Accounts Office.

However, special provisions apply to small businesses.  Under the Small Employers’ Relief (SER) scheme, small employers can recover 100% of SMP, SPP and SAP paid out to an employee, plus a further 4½% in compensation for the employers’ NICs paid on the statutory payments.  To qualify for the SER scheme, the business must have a liability for employee and employer Class 1 NICs of not more than £45,000 in the ‘qualifying year’.  If the first payment of SMP, SPP or SAP to a particular employee qualifies under the SER scheme, all of the subsequent payments to that employee do, even if the payments overlap two tax years.

The ‘qualifying year’ is the last complete tax year before the first day, the Sunday, of:

• the qualifying week in the case of a birth, or
• the matching week in the case of adoption.

For qualifying weeks and matching weeks starting during the 2010/11 tax year, the qualifying tax year is 2009/10.

Employers that have been operating for less than twelve months in the qualifying year can take the total employee and employer NICs in the qualifying year, divide by the number of months as an employer and multiply by 12.  A new employer without a qualifying year can do the same using the NICs to date in the current year.  If the result in each case is not more than £45,000, the SER scheme can be used.

In the situation where arrears of SMP, SPP or SAP have been paid to an employee due to a recalculation of average earnings as the result of

• in the case of SMP, a pay rise that takes effect at any time between the start of the relevant period used to determine average earnings and the end of the employee’s maternity leave, or
• in the case of SPP and SAP, a backdated pay rise that takes effect at any time during the relevant period,
  the appropriate percentage of the arrears may be claimed after they have been paid.  The recovery percentage is the rate in force at the effective date of the pay rise.

Recovery is achieved by reducing the amount of NICs due for payment to the HMRC Accounts Office by the amount to be recovered.  If the amount being recovered is greater than

• the total of the NICs due, the amount of tax shown on the payslip should then be reduced
• the total of the NICs and tax due, a NIL return should be sent to the Accounts Office and the remainder recovered the following month. 

No explanation has to be given for the reduction – the recovery is accounted for on the year-end P35 Annual Return.