Is Maternity Pay Taxed? SMP, Tax Codes and Refunds

Yes — maternity pay is taxed. Statutory Maternity Pay (SMP) and any enhanced or contractual maternity pay count as earnings, so your employer deducts Income Tax and Class 1 National Insurance through PAYE exactly as it does from your salary. What changes is the amount: your income for the year usually drops sharply, and because tax was deducted on the assumption you would earn a full year's salary, a refund is often sitting there waiting.

Key points

• SMP, enhanced maternity pay, Statutory Paternity, Adoption and Shared Parental Pay are all taxable earnings; Maternity Allowance from the DWP is not taxable.
• The Personal Allowance is £12,570 and the basic-rate band covers the next £37,700 of taxable income, so a leave year often pulls a higher-rate taxpayer back into basic rate.
• If you stay on payroll and keep getting paid, a cumulative tax code usually corrects itself month by month — the refund appears as smaller deductions.
• Overpayments stick when pay stops completely, when you leave the job, or when a Week 1/Month 1 or emergency code is used.
• National Insurance is worked out pay period by pay period and is never refunded for a low-income year, even when Income Tax is.

Is SMP taxable?

SMP is paid by your employer through the normal payroll, is reported to HMRC under Real Time Information, and appears on your payslip and P60 as pay. That means it is subject to Income Tax at your usual rates and to Class 1 National Insurance at 8% on earnings between £12,570 and £50,270 a year (2% above that). Your employer also pays employer's NI at 15% above the £5,000 secondary threshold, and can reclaim most of the SMP itself from HMRC.

The statutory structure is 39 weeks of pay across up to 52 weeks of leave: six weeks at 90% of your average weekly earnings, then 33 weeks at the lower of the standard weekly rate or 90% of your average weekly earnings, then 13 weeks unpaid. Because the first six weeks are earnings-linked, high earners see a big cliff-edge drop in month two or three of leave. You can model the weekly figures with the maternity pay calculator.

Maternity Allowance is the exception worth remembering. It is a benefit rather than wages, so it arrives untaxed and is not entered on a tax return. If you are self-employed and claiming Maternity Allowance, your Class 4 National Insurance and Income Tax still run off your trading profits in the normal way at 6% and 20% respectively over £12,570.

Enhanced pay: when higher rate still bites

Many employers top SMP up — say full pay for 12 weeks, then half pay, then statutory. Enhanced pay is ordinary taxable pay, and it is usually front-loaded, so the tax year in which your leave starts can still contain enough income to reach the 40% band above £50,270 of total income. The year that follows is normally the low one.

Two practical consequences. First, any bonus, accrued holiday or lump-sum top-up paid in a single month is taxed as if that month's rate of pay continued all year, so the deduction can look brutal; a cumulative code claws it back in later months. Second, if your total income for the year lands between £60,000 and £80,000 and you or your partner claim Child Benefit, the High Income Child Benefit Charge applies on a sliding scale — Child Benefit itself is £27.05 a week for the eldest child and £17.90 for each additional child. A leave year that pushes income below £60,000 removes the charge entirely.

In Scotland, Scottish rates apply to non-savings income, so maternity pay is taxed at the starter 19%, basic 20%, intermediate 21%, higher 42%, advanced 45% and top 48% rates. The mechanics below are identical; only the percentage applied to the refund changes.

Why you may be due a maternity tax refund

PAYE normally works cumulatively. Each payday your employer looks at your total pay and total tax for the year so far, works out what should have been deducted by that point, and adjusts. So if your pay collapses mid-year while you stay on payroll, the correction happens automatically — you will see very small deductions, or a month where tax is refunded to you in the payslip. Most people never notice this is the refund.

The overpayment becomes stuck in four situations:

• Your pay stops altogether. During the final 13 unpaid weeks, or any unpaid extension, there is no payment for your employer to refund tax against. Unused Personal Allowance for those weeks simply sits there until HMRC reconciles the year after 5 April.
• You do not return. A P45 part-way through the year closes off the cumulative calculation, leaving the remaining months' allowance unused.
• Your code is not cumulative. A Week 1/Month 1, BR or 0T code ignores what has gone before, so no correction can happen. This often appears when you return to work, change hours, or your employer restarts payroll after a nil-pay period.
• Your code still contains last year's adjustments. A company car handed back at the start of leave, a benefit that stopped, or an HICBC adjustment collected through your code all overstate your tax while you are on reduced pay.

Worked example: leaving during maternity leave

Maya works in England on £60,000 a year (£5,000 a month), code 1257L cumulative.

1. April to September (months 1–6): pay of 6 × £5,000 = £30,000. Allowance to date £6,285, so taxable pay to date is £23,715. Basic band to date is 6/12 × £37,700 = £18,850, taxed at 20% = £3,770. The remaining £4,865 is taxed at 40% = £1,946. Tax deducted to date: £5,716.
2. Leave starts 1 October. With six weeks at 90% of pay and then statutory rate, she receives roughly £4,500 in October, £2,300 in November and £810 in each of December and January — £8,420 in total.
3. Position at 31 January (month 10): pay to date £38,420. Allowance to date £10,475, taxable £27,945, all within the 10/12 basic band of £31,417, so tax due to date is 20% × £27,945 = £5,589. Payroll refunds the £127 difference across those four payslips.
4. She resigns on 31 January and has no further income before 5 April.
5. Her true liability for the year: £38,420 − £12,570 = £25,850 at 20% = £5,170.
6. Overpaid: £5,589 − £5,170 = £419. That is precisely two months of unused Personal Allowance (2 × £1,047.50) at 20%.

Had she stayed employed but received nothing in February and March, the outcome is the same £419 — there is no payment to refund it against, so it waits for HMRC's end-of-year reconciliation. Run your own figures through the tax refund checker before assuming payroll has sorted it.

How to get the money

If you are still employed and being paid, do nothing beyond checking your code is cumulative and correct. If you have left work and will not return in the same tax year, you can claim during the year rather than waiting — HMRC's claim a tax refund service explains the routes, including form P50 where you have stopped working. Otherwise HMRC reconciles the year automatically and issues a P800 or Simple Assessment, usually between June and November. You can see your current-year figures at any time using Check your Income Tax for the current year.

National Insurance does not work this way. It is calculated separately for each pay period and is never averaged over the year, so a low-income leave year produces no NI refund. Student loan deductions behave the same: months where your pay falls below the repayment threshold simply produce no deduction.

One overlooked allowance

If your total income for the year falls below £12,570 and your spouse or civil partner is a basic-rate taxpayer, Marriage Allowance lets you transfer £1,260 of unused Personal Allowance to them, worth £252 to the household, and it can be backdated up to four years. The Marriage Allowance calculator shows whether the transfer leaves you both better off.

Pension during maternity leave

While you are receiving any maternity pay — enhanced or statutory — your employer must generally continue its own pension contributions based on the pay you would have received, not the reduced amount actually paid. Your own contributions come out of what you are actually paid, so they fall. During unpaid leave, the employer's obligation normally stops unless your contract says otherwise.

Two tax points follow. Salary sacrifice cannot be taken out of SMP — the statutory amount must reach you in cash — so sacrifice arrangements are typically suspended or reworked for the leave period, while non-cash benefits must continue. And personal tax relief on your own pension contributions is capped at the higher of your relevant UK earnings for the year or £3,600 gross, so a low-earning leave year limits how much you can usefully pay in personally, even though the annual allowance is £60,000.

If your income in the year before leave was in the 40% band and you paid into a personal pension, the scheme only added 20% relief at source. The extra 20% must be claimed, either through Self Assessment or by contacting HMRC; the pension tax relief calculator quantifies it.

What to do next

Work out what your actual pay will be across each tax year of your leave with the maternity pay calculator, then check whether the tax already deducted matches the year's real liability using the tax refund checker. If your code is not 1257L on a cumulative basis, or still carries adjustments for benefits you no longer receive, correcting it is the single fastest way to stop overpaying.