Many mums get their inspiration to become self-employed whilst on maternity leave, and a large number will go on to have more children, after they have set up their business. But are you aware of the rules regarding self-employment during a maternity pay period? In follow-up to her previous article “Self-employed? Protect your right to maternity allowance” Frances Weir (left) from bigbooklittlebookcardboardbox – a green affordable children’s bookcase, designed to encourage an early love of reading – today looks at earning from self-employment during your maternity pay period.
The rules from the Department of Work and Pensions (DWP) regarding working during a maternity pay period differ according to the type of maternity pay you are in receipt of.
The good news for brand new mums wanting to set up in business is that you can earn money from self-employment while in receipt of Statutory Maternity Pay (SMP) from an employer. The DWP website states “If you do any work in a self-employed capacity during your maternity pay period, then such work will not affect your SMP”. Just check that your contract of employment does not prohibit self-employment as you’re still classed as ‘employed’ when on maternity leave.
…if you are in receipt of maternity allowance you can’t do any work during your maternity pay period, other than 10 Keeping In Touch days
The not-so-good news is that if you are in receipt of maternity allowance (MA) (either because you are self-employed, or you do not qualify for SMP from your employer), you can’t do any work during your maternity pay period, other than 10 Keeping In Touch (KIT) days. KIT days are designed to allow you to maintain contact with your business when on maternity leave. They are not formally monitored, but the rules are clear – “If you work for more than 10 [KIT] days you must not collect any more [MA]”. And annoyingly, you can’t break down the 10 days into smaller chunks of time – “Any work you do as a KIT day, even as little as half an hour for example, will be counted as a whole day for KIT days”.
So what are the options for self-employed sole traders who want to claim MA? You’re still allowed to draw an income from your business while receiving MA – you’re just not allowed to do the work yourself. So, Andrea Dobson from Cheap Accounting advises that there are two main options: “If you are a sole trader, you can change your business structure to a partnership by adding a partner (a friend, a spouse), who could then run the business. A partnership should not be entered into lightly. Unlike shareholders in a limited company, partners in a general partnership have no financial protection if the business runs into trouble – each partner is responsible for the debts of the business as a whole. Also, disputes between partners can cause difficulties so it is a good draw up a deed of partnership in advance and get legal advice on the level of responsibility within the deed – especially in this scenario when one of you would not be working but still drawing an income. The partnership would need to be registered with HMRC and a partnership tax return would need to be completed which shows how the profit is split between partners. Each partner is then responsible for paying tax on their share of the profits”.
The other alternative is to employ someone to run your business during the maternity period. “Becoming an employer is a big step for a small business” says Andrea, “You would need to set up a payroll to allow for national insurance and tax contributions and you would have to meet the minimum wage and all relevant health and safety legislation”.
After looking into the costs associated with both these options, many mums decide either to forgo the MA to keep running the business, or choose to close their business for the maternity pay period.
There is a potential third way, but it is totally at the discretion of the job centre that administers your MA. The DWP website states. “If you work for more than 10 [KIT] days you must not collect any more money. A decision maker, trained in applying social security law, will decide whether any further payments can be made, but you will lose MA for at least the number of days you work over the 10 days allowed.” So, in theory at least, it’s possible (with a sympathetic job centre) to work a couple of days a week on your business, but lose pro-rata some of your MA. My local job centre was unable to tell me how this guidance would be applied in practice; they said it would be assessed on a case-by-case basis – if anyone has any experience of this then please do add a comment below.
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