This post was last updated on 30 July 2014 by Claire Meredith of Zest Payroll.
Did you know the level of maternity allowance (MA) you get as a self-employed mum does not depend on how much you earn from your business?
Self-employed mums can only get the maximum rate (£123.88 a week) or the minimum rate (£27 a week) – a big difference. The rate you end up receiving depends on a decision you make regarding national insurance when you first register as self-employed. Today, self-employed mum Frances Weir explains the implications of getting that decision right.
The rules state that you must register with HMRC as self-employed within 3 months of starting trading. When you register, you will be given the choice of either:
- paying Class 2 national insurance contributions (currently £2.75 per week),
- completing a Small Earnings Exception Certificate (if you expect your earnings to be less than £5,885 a year), thus not pay any national insurance.
You can choose to pay Class 2 contributions regardless of how low you expect your income to be. But (if eligible) the obvious temptation for start-ups is to opt for the Small Earnings Exception Certificate – it saves you £2.75 a week at a time when you’re unlikely to be making any profit.
However, this has huge financial implications in terms of Maternity Allowance.
If you have been registered as self-employed for at least 26 weeks in your ‘test period’ (the 66 weeks before your due date), you’ll get some MA. If you have paid Class 2 contributions for at least 13 weeks in your test period, you’ll get the maximum rate (£138.18 a week for 39 weeks). But if you have held a Small Earnings Exception Certificate you’ll only get the minimum rate (£27 a week for 39 weeks); a huge £4,336.02 difference over the maternity period.
As a comparison, 13 weeks of Class 2 contributions costs £35.75 – go do the maths!
And here’s the important small print: for any week you have held a Small Earnings Exception Certificate, you’ll only ever qualify for the minimum MA, even if you have been voluntarily paying Class 2 contributions as well (this is to stop you getting pregnant and then paying Class 2 contributions in order to get maternity allowance!). If you want to work the system in this way, you must get your Small Earnings Exception Certificate cancelled first. The cancellation takes about a month to process so obviously you would want to do this soon after getting pregnant to ensure you have a clear 13 weeks of paying Class 2 contributions without holding a Small Earnings Exception Certificate, within your test period.
Not sure you will get pregnant? Opting to pay Class 2 contributions is a no-risk strategy – you’re entitled to reclaim the contributions made in a financial year if you subsequently find that your earnings fall below the £5,885 threshold of the Small Earnings Exception Certificate (if you plan to do this, look into it early on to ensure you meet the deadlines involved).
Don’t forget, Class 2 contributions also count towards other important benefits for the self-employed mum – the basic state pension, employment and support allowance and bereavement benefit.
I hope this clears up some of the confusion regarding MA. There is a great deal of mis-information on the internet – I’ve seen articles on mumpreneur websites recommending that start-up business mums opt for the Small Earnings Exception Certificate without any discussion of the impact it has on maternity benefits. Self-employed mums need to be aware of the financial implications of holding a Small Earnings Exception Certificate if there is any chance they might become pregnant in the future. And if anyone reading this is pregnant but holds a Small Earnings Exception Certificate, act fast to extinguish it!
This article is not applicable to women who are both self-employed and employed. Please check the latest advice from the Department of Work and Pensions before relying on information presented here.
Source: Department of Work and Pensions
Confused by whether you can work during your maternity pay period or not? See Frances’ post Self-employment during your maternity pay period
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