I face redundancy. Is maternity pay taxable?

3 September 2019

Q

I’m seven months’ pregnant and have just been made redundant from my job. Because I have been at my workplace for just under two years, I’ve been told I don’t qualify for redundancy pay. Instead they have offered me my statutory maternity pay and my enhanced maternity pay, which adds up to around £24,000.

As I’m not getting a standard redundancy payout will I have to pay tax on the maternity pay?

From
CW/Swansea

A

I face redundancy. Is maternity pay taxable?I am sorry to hear you are being made redundant. It is correct that you are not entitled to statutory redundancy pay because of your length of service, although you are entitled to your contractual notice pay, which would be subject to statutory deductions.

As you are aware, because your employment ends in or after your qualifying week, you are entitled to statutory maternity pay (SMP) for 39 weeks. Your employer will pay you SMP in the same way as your salary was paid. They are also required by law to deduct tax and national insurance contributions.

However, the payment being made in respect of the additional enhanced maternity pay could, in my opinion, be made as an ‘ex-gratia payment’ as compensation for loss of office and therefore paid free of any statutory deductions up to £30,000.

Should your company agree to this, they may require you to sign a settlement agreement and this could include a tax indemnity clause.