Advanced Funding SMP (Statutory Maternity Pay)

Having a child is the most pleasant moment when life takes on a new journey. However, this turn in life comes with new financial liabilities as well. So, the employees and the directors need maternity leaves and advance funding SMP to manage their finances.

In the United Kingdom, businesses are liable to provide Statutory Maternity Pay (SMP) funding to their employees. However, the HMRC comes forward when small business owners cannot manage to pay their employees, or even directors, from their payroll.

The SMP funding is not as simple as it seems to be due to the cash flow received by the HMRC. Moreover, the application procedure requires you to take precautions to avoid any penalty later.

This article will inform you about everything you can come across while applying for advance funding SMP from HMRC. So, let’s start!

What Is Statutory Maternity Pay Advance Funding?

SMP advance funding is financial assistance from employers to their employees or directors. This is an advance payment of up to 103% of employees’ statutory maternity, paternity, adoption, or shared parental pay.

Sometimes, small business owners cannot pay maternity, paternity, or shared parental pay due to the scarcity of cash flows. They can apply for SMP funding or advance payment from HMRC in this case.

The HMRC adjusts the cash flows while repaying these statutory payments in a tax year by managing the PAYE liabilities and the statutory payments to ease the process.

How And When To Apply For Advance Funding (SMP)?

Although employers can apply for the SMP themselves, they can also hire the services of an accountant to manage and settle their payments.

On the other hand, you can also apply yourself. For this, you need to follow the following instructions to avoid any penalties:

1.  Original MATB1 form
2. See your General Practitioner (GP) after the 20-week screening scan of your baby.
3. Add a date when the leave of an employee begins.
4. Send Employer Payment Summary (EPS) and Full Payment Submission (FPS) if you reclaim advance payments.

Keep in mind that you must apply for statutory funding a minimum of four weeks before the payment is due. Otherwise, if you apply before this specified time, HMRC will reject the application.

Besides, you can be charged a penalty (up to £3,000 per employee for each tax year) if you include incorrect information in your application.

Statutory Maternity Leave and Pay

Maternity leave in the UK consists of 52 weeks in total, divided into two parts:

• Ordinary Maternity Leave: Initial 26 weeks
• Additional Maternity Leave: Remaining 26 weeks

Expectant mothers can apply for maternity leave up to 11 weeks before their due date. Statutory Maternity Pay (SMP) is provided for 39 weeks of this leave period.

In terms of Pay Structure:

1. First 6 Weeks: Employees receive 90% of their Average Weekly Earnings (AWE).
2. Remaining 33 Weeks: The employee receives either 90% of their AWE or the standard weekly SMP rate of £172.48 (as of the 2023/24 tax year), whichever is lower.

SMP and Taxes

SMP is treated as income, meaning it’s subject to income tax and National Insurance deductions through payroll. Employers deduct these contributions as they would with a standard income, ensuring compliance with HMRC tax regulations.

Additionally, pension contributions, union subscriptions, or other deductions may also apply to SMP.

SMP Payments

Once an employee qualifies for SMP, the employer pays it in the same manner as regular wages. Importantly, even if the employee leaves their job after qualifying, they remain entitled to receive SMP.

In cases of multiple births, such as twins or triplets, the SMP amount is based on AWE and does not increase per child.

Conclusion

SMP is a supportive benefit for employees preparing to welcome a child. If an employer is unable to cover SMP costs, they may apply for advance funding from HMRC, typically four weeks before the payment due date.

Employers can claim 103% of SMP (or 100% if not entitled to Small Employers’ Relief), which covers SMP, paternity pay, or shared parental leave payments. This system ensures both employer support and employee assistance during maternity leave.