Yes, maternity pay is taxable.
An employee receives deductions for tax and National Insurance on their Statutory Maternity Pay (SMP) just like when they receive a normal wage slip.
What is Maternity Pay?
Maternity pay is the money an employee may receive when they take leave for pregnancy.
The value of the first six weeks of SMP is 90% of an employee’s average weekly earnings for the relevant qualifying period. You must pay the remaining 33 weeks at a value of £145.18 per week (or 90% of their average weekly earnings for the relevant qualifying period if that’s lower). If an employee takes additional maternity leave (anything beyond 39 weeks) you don’t have an obligation to pay them for their time off, but they might receive a tax refund for any tax paid during their tax code for the current year, or through a cheque from the HMRC. Direct your employee to HMRC if they have any concerns regarding tax refunds on unpaid time off.
Maternity Pay Calculator
Maternity pay is often tricky to figure out, and there are sometimes exceptions to the rules. So, if you want to know exactly how much tax on maternity pay an employee will have, use our free Maternity Pay Calculator.
How to Calculate Taxable Maternity Pay
The PAYE system calculates income tax in one of two ways depending on the employee’s tax code.
If the employee has a tax code with a Week 1 or Month 1 indicator, you calculate tax as follows:
Total all taxable earning received in the pay period to reach individual’s taxable pay.
You then use their tax code to calculate the amount of free pay available for that period. For example, a weekly paid employee, with a standard tax code of 1185L, would receive free pay of £11,850 per year.
Now, divide this by 52 weeks to get a free pay figure of £227.88. Deduct the free pay from the employee’s total taxable pay received in the period. PAYE then deducts tax from anything in excess of the free pay at the appropriate percentage.
If the employee has a tax code without a Week 1 or Month 1 indicator (known as the cumulative basis), calculate the tax as follows.
Follow the same steps as before and total the taxable earnings received in the tax year. Using the employee’s tax code, determine the amount of cumulative free pay available for the year to date.
For example, a weekly employee with a standard tax code of 1185L would again qualify for free pay at £11,850 per year, which you divide by 52.
However, this time we would multiply the figure by the tax week number we’ve reached, to get the free pay to date at £1,139.42
Deduct the free pay from the taxable pay to date and PAYE will tax any excess over the free pay at the appropriate percentage.
Speak to an Expert
If you have any issues with maternity pay, or you have any employees asking ‘is Statutory Maternity Pay taxable?’ then contact our employment law experts today on 0808 145 3382.