All women in the UK are entitled to a total of 52 weeks of maternity leave from work. This is made up of 26 weeks Ordinary Maternity Leave and 26 weeks Additional Maternity Leave.
There are two types of maternity benefits available. Statutory Maternity Pay (SMP) which is paid by an employer, and Maternity Allowance (MA) which is paid from the Department of Work and Pensions. You can only claim one type of maternity benefit at any given time.
If you are the director of a private limited company, you may be entitled to SMP or MA, but the type of benefit you choose will depend on a number of factors:
- Are you the sole director and shareholder of your own company?
- Does the company have other directors that could continue to operate the business whilst you are absent?
- Are you employed as a director in a company in which you hold no shares?
- What size is the business and how much surplus income does it generate?
Statutory Maternity Pay
If you are the sole director and shareholder of your own company, you may be unable to pay yourself Statutory Maternity Pay unless the company has other employees that can carry out the necessary tasks on your behalf and/or the company can generate sufficient income in your absence to pay your SMP.
If you have no employees, will you be able to appoint a temporary director in your place and afford to pay their salary and your own SMP?
To qualify for SMP you must satisfy 2 basic rules: the continuous employment rule and the earnings rule. You must also provide your employer with evidence of your baby’s due date and tell your employer the date you want your SMP to start.
In order to qualify for the continuous employment rule, in most cases, you must have been in employment with your current employer or through an employment agency for a continuous period of at least 26 weeks into the qualifying week. This is the 15th week prior to the week in which your baby is due.
Your average gross weekly earnings must also be at least the same as the Lower Earnings Limit for National Insurance purposes, which is currently £123 per week (2023/24 tax year).
If you qualify for SMP, you should be entitled to a total of 39 weeks’ pay. During the first 6 weeks of your leave, you should be paid 90% of your average weekly earnings, and for the subsequent 33 weeks you will be paid a weekly standard rate up to £172.48/week.
If you do not qualify for SMP, or you are unable to pay yourself SMP, you may be eligible for Maternity Allowance if you:
- Are in employment but not eligible for SMP.
- Are registered as self-employed and paying Class 2 NIC or hold a Small Earnings Exception Certificate.
- Were recently employed or self-employed.
- Are not employed or self-employed but are regularly involved in the business of your self-employed spouse or civil partner.
You can receive MA for a maximum period of 39 weeks if you have been employed or self-employed for at least 26 weeks during a 66-week test period, which runs up to and includes the week before your baby is due. Your total average earnings must be equal to or greater than the MA threshold, which is £30 per week.
This is worked out by taking an average of 13 weeks’ earnings during the test period. The amount of weekly MA you can receive will be 90% of your gross average weekly earnings up to a maximum of £172.48 per week.
Maternity benefits for company directors is a particularly tricky subject area that depends on so many variables; therefore, we strongly advise consulting an accountant or tax advisor for detailed guidance and assistance.
If you would like to be put in touch with a reputable accountant, please contact 1st Formations and we would be happy to make a recommendation.