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Employers are entitled to recover a proportion of the statutory payments they pay out to employees. In the case of Statutory Maternity Pay (SMP), Statutory Adoption Pay (SAP) and Statutory Paternity Pay (SPP), the amount that can be recovered is
- 104.5% of the payment, (4.5% of which is compensation for the additional employer NICS due on the payment), where the employer's annual liability for employee and employer Class 1 NICs is not more than £;45,000
- 92% of the payment in all other cases.
A different rule applies to Statutory Sick Pay. If the total amount of SSP paid out by the employer (across all PAYE schemes if there are more than one) in a tax month exceeds 13% of the total Class 1 NICs due for that month, the difference may be recovered.
The employer makes the recovery by deducting the total recoverable amount for the tax month from the monthly or quarterly payment due to the employer's Accounts Office, i.e. payments of PAYE tax, employee and employer Class 1 NICs, student loan deductions and Construction Industry Scheme tax deductions.
If the amount to be recovered exceeds the amount due for payment to the Accounts Office, the employer may simply make no payment (although making a nil return to the Accounts Office will avoid a non-payment query) and recover the remainder the following month or quarter. If this procedure is followed and, at the end of the tax year, the employer has been unable to recover the total amount that may be recovered for the tax year, the employer should complete form SP32, available to download at www.hmrc.gov.uk/employers/fagsp32.shtml.
However, if the employer is going to be financially embarrassed because the total of the statutory payments due for payment in a tax month is more than the total amount due to the Accounts Office, an arrangement exists for the employer to ask the Accounts Office to advance the shortfall. The employer may decide how much is needed in advance but it is limited to,
- in the case of SSP, the total amount that is recoverable in the current tax month,
- in the case of SMP, SAP and SPP, the total amount that is recoverable in the current and future tax months within the current tax year.
Where payments of SMP, SAP or SPP overlap a new tax year, a separate claim for advance funding may be made for the payments due in the new tax year. This may be done before the end of the current tax year.
The request for advance funding is made by letter to the employer's Accounts Office. There is no form for this purposes. In all cases, the letter must provide:
- the employer's name
- the employer's PAYE reference
- the employer's Accounts Office reference
- the name and NI number of the employee(s) concerned
- the total amount of advance funding requested
- an explanation of how the amount requested is calculated
- the dates in respect of which the claim is being made.
Where the claim is for advance funding for SMP, SAP or SPP, the letter should also state:
- the date on which the baby is expected or the date of adoption
- if the employer is entitled to claim the NICs compensation, an explanation of how the amount requested is calculated.
The amounts of advance funding provided by the Accounts Office must be recorded carefully as it will have to be included in the year-end reconciliation of form P35 Employer Annual Return.
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