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SMP and dividends for company director while on maternity leave - please help!

6 replies

LeanOut · 15/07/2014 14:24

Hi,

I'm a company director of a small business. I run the company with one other director (who doesn't have kids). We employ freelancers on a project basis as and when we need them, but not as employees. I'm 15 weeks pregnant so we need to work out what we're going to do while I'm on mat leave.

As I understand it, I think I can claim SMP, although it probably won't be much because we pay ourselves a minimum amount in salary and top up using dividends. What is the norm with dividends while you're on mat leave, though? I've read in another thread that I can continue to take dividends, because while SMP covers me as an 'employee' of my company (which I am), company directorship is treated separately and I could continue to be paid dividends.

My colleague and I haven't discussed this yet. I don't want to insist on continuing to be paid dividends while I'm not actually working - that hardly seems fair on her - but on the other hand should I get a proportion at least rather than waiving completely, as technically being a company director and having grown a moderately successful business mean I'm entitled to a share in the profits even if I'm not actually working? Or is this unreasonable and not 'the norm'?

I'm in a quandary. Any advice would be greatly appreciated! We have an accountant we can speak to, but I'd love to know what others have done in this situation before I discuss it with my accountant and colleague. Thank you...

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cheerup · 15/07/2014 21:51

Your entitlement to dividends is as a shareholder rather than as a director or employee and as such is completely unaffected by your maternity pay arrangements. Take advice from your accountant as to whether your company is in a position to pay a dividend at present. What impact on turnover/profits will your maternity leave have?

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LeanOut · 16/07/2014 07:49

Thanks for your reply. There will be an impact because we'll need to employ someone on a short-term contract as maternity cover.

I think my colleague feels I should waive my right to dividends completely while I'm on leave, which is fine in principle but because we take such a small amount as actual salary, I imagine my SMP will be minimal as a result. I suppose my issue is that at the moment we don't pay ourselves a 'good' salary - the dividends are what makes it all worthwhile. If we paid better salaries I wouldn't have such an issue, but we don't really treat dividends as a bonus - they're in effect what makes our 'pay' reasonable. But my SMP will be based on actual salary. Am I making sense?! Probably not!

I'll discuss it with my colleague and accountant and try to come to an arrangement that's acceptable to both of us...

Thanks again.

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prh47bridge · 16/07/2014 10:05

For the first 6 weeks SMP is 90% of your weekly pay. For the remaining 33 weeks it is capped. Provided you pay yourselves at least £153.53 per week you will receive the maximum amount for those 33 weeks.

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cheerup · 16/07/2014 17:14

Assuming that you have come to the dividend/salary arrangement for tax reasons your co-director may not want to pursue the simplest solution which would be to increase their salary or pay them a bonus for the period of your maternity leave and either declare a reduced dividend or no dividend over the period. The alternative would be to issue them with preference shares with different dividend rights but without voting rights so that you maintain your joint control. You would need a solicitors advice and for them to draft a shareholders agreement and changes to articles. This will have a cost. Don't forget that you can only pay a dividend from profits available for the purpose and your maternity leave sounds like it will have an impact although all of course depends on the size of your business and the level of dividend you have been paying.

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jubersani · 15/01/2015 12:23

Hi Leanout,
I have just come across this post and hoping you will see my msg. I am now in the exact same situation as you were and would love to hear how you sorted that situation. As with you I am on minimum pay and most of the salary is taken as dividends. I now have to figure out what will happen when I am on maternity leave (starting August) and although he has not actively said it, from previous comments I know he will want me to draw the very minimum. If you get this message, would love to hear back from you and understand what you did.

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SuggestmeaUsername · 19/01/2015 21:57

You will only receive SMP if your gross pay is above the lower earnings limit for national insurance. if it is below the LEL you will not be entitled to SMP. if you are entitled, your company will probably be able to claim back 100% of the SMP paid

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