Getting advance funding from HMRC for statutory pay

Q: What mistakes do employers make?

Applying too early. More than four weeks before the first payment, the application may be returned. Claiming the whole payment. The advance covers only the shortfall after PAYE deductions, up to the recoverable amount. Skipping the EPS. Without it, HMRC cannot set the reclaim against the advance. Expecting help with SSP. Sick pay cannot be advanced. Overlooking Small Employers' Relief. Recovering 109% rather than 92% changes the amount that can be advanced; check eligibility before applying. See Statutory Maternity Pay for the payment rules. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Employers normally fund statutory parental payments by keeping back the amount they can reclaim from the PAYE they owe HMRC. Where that reclaim is more than the tax, National Insurance, student loan and CIS deductions due for the month or quarter, the employer can ask HMRC to pay the shortfall in advance. Applications are made online, no more than four weeks before the first payment, and the advance is squared up through the Employer Payment Summary.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

How are statutory payments normally funded?

HMRC’s Statutory Payments Manual at SPM180700 says employers are expected to use the PAYE tax, National Insurance contributions, student loan deductions and Construction Industry Scheme deductions they collect to fund Statutory Maternity Pay, Statutory Adoption Pay, Statutory Paternity Pay, Statutory Shared Parental Pay, Statutory Parental Bereavement Pay and Statutory Neonatal Care Pay.

The employer pays the employee, then reclaims through the Employer Payment Summary, reducing what it sends HMRC. GOV.UK says employers can usually reclaim 92% of these payments, or 109% if they qualify for Small Employers’ Relief because they paid £45,000 or less in Class 1 National Insurance in the last complete tax year before the relevant qualifying week. The detail is in our guide to recovering statutory payments.

The problem comes when the PAYE bill is small and the statutory pay is large: a small business with one employee on maternity leave, for example. The manual notes employers may also need the same deductions to pay Statutory Sick Pay, tax refunds or other amounts, and sometimes there is not enough.

When can an employer ask for advance funding?

The legal basis is regulation 5 of the Statutory Maternity Pay (Compensation of Employers) and Miscellaneous Amendment Regulations 1994 for SMP, and regulation 4 of the Statutory Paternity Pay and Statutory Adoption Pay (Administration) Regulations 2002 for paternity and adoption pay. Both work the same way. An employer can apply where the amount it is entitled to recover for a tax month or quarter exceeds the total of:

income tax it must pay over for its employees for that period;
student loan deductions made in that period;
National Insurance contributions due for that period; and
CIS deductions from payments to subcontractors.

It can also apply in advance where it expects that condition to be met on a later pay date. The application must not exceed the amount recoverable for the month or quarter concerned. HMRC’s example at SPM180900 is an employer liable to pay £100 of SMP with £50 of tax and National Insurance to pay over: it should apply for £50, not £100.

SPM180800 says employers should work out, each tax month or quarter, whether they have enough deductions to cover what they must pay out, and apply for the balance. SPM180600 confirms the alternative of carrying an unrecovered balance forward to the next month. Statutory Sick Pay is excluded: SPM180700 says HMRC can advance all or part of a statutory payment except SSP.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

How do you apply?

For maternity, paternity, adoption and shared parental pay, GOV.UK provides an online application. Employers sign in with the details they use for Self Assessment, VAT or Corporation Tax; agents can use their Agent Services Account and certain other agent sign in details. HMRC asks for the advance to be calculated in weeks, however often the employee is paid.

Timing is the main rule. You can apply up to four weeks before you want the first payment, and HMRC may return an application made earlier.

Statutory Parental Bereavement Pay and Statutory Neonatal Care Pay have their own online applications. For these you need your PAYE reference, Accounts Office reference, the tax or National Insurance you owe HMRC, bank details, and a completed form R38 if the advance is to be paid to a third party; a posted R38 should be sent to HMRC Corporate Treasury within four weeks of applying.

Where the statutory payment relates to an earlier tax year and has not yet been paid, the online service cannot be used. SPM180800 says the application must be made in writing, setting out the calculation, and GOV.UK gives the address as HMRC Corporate Treasury, BX9 1BG.

What information does the application need?

GOV.UK lists what to include for maternity, paternity, adoption and shared parental pay:

your Accounts Office reference and PAYE reference;
the employee’s name and National Insurance number, and the date they started with you (in a TUPE transfer, the date they started with the business, not when you took it over);
the dates the claim covers, details of any reduction you have already made to your monthly or quarterly payments, the total you are entitled to reclaim and the amount you want in advance;
for maternity and adoption pay, the expected date of birth or adoption; for paternity pay, the actual date; for adoption pay, whether the adoption is in the UK or overseas;
the date your business started, your contact details and the bank account for the payment.

How is the advance paid back?

You still send an Employer Payment Summary for every period in which you reclaim statutory pay, even though HMRC has advanced the money. GOV.UK explains that if the statutory payments you reclaim are more than your PAYE deductions for the month, HMRC automatically uses the excess to reduce what you owe on the advance. Its example: £2,500 of PAYE deductions, £3,000 reclaimed on the EPS, so the advance is reduced by £500.

If anything is still owed when the period the advance covers ends, you pay it by that month’s normal payment date. Our guide to the FPS and EPS explains the reporting.

How does this work in practice?

Illustration only. A small company owes about £600 a month in PAYE tax and National Insurance. Its only employee goes on maternity leave and is due SMP of £450 a week for the first six weeks. The company qualifies for Small Employers’ Relief.

In the first tax month it pays four weeks of SMP: £1,800.
At 109% it can recover £1,962.
Its PAYE for the month is £600, so £1,362 cannot be recovered from that month’s deductions.
It applies online, within four weeks of the first SMP payday, for an advance of £1,362.
Its EPS for the month reclaims £1,962. HMRC sets £600 against the PAYE due and uses the £1,362 balance to clear the advance.

Without the advance the company would have to find £1,362 from its own cash and wait to recover it in later months.

What are the risks?

GOV.UK warns that including incorrect information in an application can lead to a penalty of up to £3,000 per employee for each tax year. If an employer receives an advance and keeps it without paying the employee, SPM181000 says the case goes to HMRC’s compliance team to consider recovery and to a decision maker for a formal decision.

The obligation to pay does not go away. GOV.UK says you must still pay SMP even if you stop trading. If the employer becomes insolvent, HMRC pays the statutory payments to employees who were receiving them, and the insolvency practitioner or employer must contact the National Insolvency Unit.

What mistakes do employers make?

Applying too early. More than four weeks before the first payment, the application may be returned.
Claiming the whole payment. The advance covers only the shortfall after PAYE deductions, up to the recoverable amount.
Skipping the EPS. Without it, HMRC cannot set the reclaim against the advance.
Expecting help with SSP. Sick pay cannot be advanced.
Overlooking Small Employers’ Relief. Recovering 109% rather than 92% changes the amount that can be advanced; check eligibility before applying. See Statutory Maternity Pay for the payment rules.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.