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Home / Blog / What is the “Bump Plan” for Statutory Maternity Pay?

What is the “Bump Plan” for Statutory Maternity Pay?

16 September 13 | By: Jas Jhooty

SMP

Some of you may have seen the recent Panorama programme on BBC one that unfairly pilloried David Heaton who is a highly respected figure in employment taxes.

You may be wondering how the “Bump Plan” that was referred to in last night’s programme, works in practice.

Average Weekly Earnings

You may know that the first six weeks of Statutory Maternity Pay is calculated as being 90% of Average Weekly Earnings. Average Weekly Earnings is measured across a minimum of an eight week period ending on the last pay day before the end of the Qualifying Week, (15th Week before the Expected Week of Confinement when the baby is due).

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.”

The “Bump Plan”

All that the “Bump Plan” refers to is, if you are able to award discretionary bonuses, you may consider planning the timing of these payments for expectant parents. If these bonuses are paid during the period for calculating the figure of Average Weekly Earnings, considerable savings can be made.

This is because employers can recover between 92% to 103% of Statutory Maternity Pay from their PAYE tax & NIC bills.

So if the Average Weekly Earnings figure is increased it will be of benefit to both the employee and the employer when Statutory Maternity Pay commences to be paid.

Our opinion

Our opinion is that David Heaton was only highlighting a legitimate opportunity for tax planning that may be little known, but one that is actually mentioned in the Government’s own literature. Isn’t this what tax advisers are paid to do?

In no way can this be construed as being tax avoidance as there is nothing artificial or abusive about the “Bump Plan”.

For David Heaton to be forced to resign from the newly formed General Anti-Abuse Rule (GAAR) advisory panel is a travesty. One of the main purposes of the GAAR advisory panel is to act as independent arbiters of when the GAAR guidelines are to apply. As one of the foremost experts in employment tax legislation in the UK, the panel has now lost a very important member and will be less effective for that loss.

What is most disappointing about this whole sorry episode is how quickly the politicians gathered to condemn David Heaton.

It just goes to show how weak and uninformed they are if they are so easily manipulated by shoddy journalists, who have used surreptitious means to falsely discredit a thoroughly decent well-respected man, for the sake of a few sensational headlines.

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