When, and how, can an employer obtain advance funding for statutory payments?

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), Ordinary Statutory Paternity Pay (OSPP) and Additional Statutory Paternity Pay (ASPP), the amount that can be recovered is dependent on the annual gross Class 1 NICs that are payable in the preceding ‘relevant tax year’:

If the annual gross liability is £45,000.00, or less:

• 103% of the payment, made up as follows:
• 100% of the payment, plus
• 3% of the payment which is compensation for the additional employer NICs due

If the annual gross liability is above £45,000.00:

• 92% of the payment

A different rule applies to reclaiming Statutory Sick Pay (SSP).  Recovery of SSP can only be made under the Percentage Threshold Scheme (PTS),   which is where a recovery can only be made on the amount of SSP paid that exceeds 13% of the total Class 1 NICs due for that month.

Recoveries are made 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 and recover the remainder the following month or quarter (however, the employer should make a ‘Nil Return’ to the Accounts Office to avoid a non-payment query and penalty).  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.

The above situation will apply to many employers who have the necessary cash flow to enable Statutory payments to be made before they are recovered in the following month, or quarter.  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, OSPP and ASPP, the total amount that is recoverable in the current and future tax months within the current tax year

Where payments of SMP, SAP, OSPP or ASPP 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.

HMRC advise on their Website that the request for advance funding is easiest when made online.  Alternatively, an application can be made by post or by fax, and contact details are provided on the Website.  Note that there is no paper form for making an application so post and fax applications have to be made by letter.

In all cases, whether letter or online application, the following information must be provided:

• the name of the Accounts Office (i.e. Cumbernauld or Shipley)
• the employer’s Accounts Office reference
• the employer’s PAYE reference
• the employer’s name and the correspondent’s contact details
• the date that the company started
• the name and NI number of the employee(s) concerned and their employment start dates
• the dates the claim relates to
• the total amount the employer is entitled to recover
• the total amount of advance funding requested (the online application will help with this calculation)
• for SMP and SAP, the expected date of birth or adoption
• for SAP, whether the adoption is a UK or foreign-based adoption
• for both OSPP and ASPP, the actual date of birth or adoption
• for ASPP, the date the mother or joint adopter returns to work and ceases to be paid SMP, MA or SAP

The amounts of any advance funding provided by the Accounts Office must be recorded carefully as they will have to be included in the year-end reconciliation of form P35 Employer Annual Return.