What is statutory maternity pay?

Do you pay tax when you are on Statutory Maternity Pay?

• Just about to start SMP and wondered if i was going to pay tax on the whopping £108.00 you earn every week!!!!! Anyone know before i call the tax office?

• Answer:

  Your tax is calculated by taking your gross income for a tax year (6 April to 5 April), deducting any allowances you may be entitled to (usually only your 'personal' allowance which is £5,035), and then charging tax on the balance ('taxable income') at the appropriate rates. The first £2150 of taxable income is taxed at 10% from £2151 to £33,300 is taxed at 22% Taxable Income in excess of £33,000 is taxed at 40% So, on your maternity pay of £108 per week, which is £5,616 over a FULL year, the first £5,035 would be tax-free, and the balance of £581would be taxed at 10% which would result in a tax charge of £58 IN A FULL YEAR. However, depending on when you started your maternity leave, you may have had 'normal' earnings in the period leading up to that. So, the amount you earned in the period from the beginning of the tax year until you started maternity pay would be added to your notional income for that tax year. For example, if you had been earning, say, £2,000 per month, and started maternity pay from 1st September, you would already have earned 5 months salary which would be £10,000, meaning that you have already used up your 10% rate, and so your maternity pay will effectively be taxed at 22%. However, you may receive a tax refund, because the tax already deducted will have been taken on the assumption that you would earn £2,000 EVERY month during the year. So, instead of earning 12 x £2,000, you will earn, notionally, 5 x £2,000 PLUS approx £3276 (which is 7 months @ £108 per week) totalling £13,276. This assumes that you continue on maternity pay until 5 April '07, which may not be the case. I guess you are wishing you had not asked now..... Just to cheer you up a little.... before Mrs Thatcher came to power in 1979, basic rate tax was 36%, and the highest rate of income tax was 83%, PLUS a 15% surcharge on income from investments - a staggering 98% Perhaps she was not ALL bad! I hope this helps, and that it does not disturb the baby too much!! Best wishes!