Readers may have been seen BBC1’s Panorama programme earlier this week, which touched, amongst other things, on the so-called “bump plan.” Details of this entirely legal tax strategy came to be heard in 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 GAAR panel is the General Anti-Abuse Rules panel, a body consisting of HMRC officers and external tax and accounting professionals, which adjudicates on the legitimacy of tax avoidance schemes within both the letter and the spirit of the statutory tax evasion regime.  

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 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 for that calculation 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.”   

What this means is that the calculation will include figures which mean that Average Weekly Earnings may not in fact be your actual average weekly earnings over any extended period, especially where your annual bonus, if any, makes up a material part of your overall earnings for the year.  It makes sense therefore, if your company awards discretionary bonuses, to 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 employee receives 90% of a more or less inflated figure, depending on the size of the bonus and the benefit for the employer comes from its ability to recover between 92% to 103% of Statutory Maternity Pay from its PAYE tax & NIC bills, thus reducing the NICs leakage.

Alternatively, I suppose, the bump plan creates the opportunity for some creative family planning by the would-be parents – if the mother-to-be can hold off the father with a bound copy of Tolleys until the Expected Week of Confinement falls in the right place relative to the bonus round, there are clearly some significant financial benefits to be had!