Readers may have been captivated by BBC1s recent Panorama programme which touched upon, amongst other things, the so-called “bump plan.” Details of this entirely legal tax strategy came to be heard in most unfortunate circumstances for a very highly regarded member of the tax profession, who has subsequently resigned his position on the GAAR panel- a very real loss in terms of his expertise and what he would have been able to bring to the role.
The bump plan is a simple but little known piece of planning. In a nutshell, the first six weeks of Statutory Maternity Pay (or Statutory Adoption Pay) is calculated as being 90% of Average Weekly Earnings. Average Weekly Earnings is measured across an eight week period ending on the last pay day before the end of the Qualifying Week (the 15th Week before the Expected Week of Confinement when the baby is due). There is a calculation pro-forma in HMRC booklet E15.
The Department of Works & Pensions’ own instructions state that:
Sick pay, overtime, bonus payments, arrears of pay and even, in most circumstances, holiday pay, must all be included if you actually get them at this time. It is when you get the money that counts, not when it was earned.
It makes sense therefore that if the company is able to award discretionary bonuses, you may consider planning the timing of these payments for expectant mothers. If these bonuses are paid during the period for calculating the figure of Average Weekly Earnings, considerable benefit can be seen- for both the employer and the employee.
The benefit for the employer comes because they can recover between 92% to 103% of Statutory Maternity Pay from their PAYE tax & NIC bills thus reducing the NICs leakage.