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HMRC internal manual

Statutory Payments Manual

HM Revenue & Customs
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Average Weekly Earnings (AWE) - SMP/SAP/ShPP/SPP: directors

Before you can calculate a director’s AWE, you must establish if the director is paid contractually, remunerated by annual voting, or both, and, when the company was incorporated.

If the director is contractually paid a regular salary calculate their AWE like any other employee.

A director who is paid contractually may also be paid a bonus or fees by a formal vote. You must still calculate their AWE in the usual way for monthly or weekly paid but only include the monies voted by formal vote if the date of the vote falls in the relevant period.

Directors paid by a formal vote only

If the director is paid only by a formal vote calculate their AWE in the usual way. A formal vote usually takes place at the company’s Annual General Meeting (AGM) and is agreed in the company minutes.

Monies drawn in anticipation of a formal vote

Some directors may regularly draw money from the business in anticipation of a formal vote. This money should not be included when working out the director’s AWE, even if NICs were deducted at the time they were paid, see below.

To calculate their AWE in a SMP case:

  • Start with the date the baby is due
  • Find the date of the Saturday in the QW,MW or ONW
  • Find the date of the last formal vote on or before that Saturday - this is the last day of the relevant period
  • Find the date of the last formal vote at least eight weeks previously and come forward one day to establish the first day of the relevant period

    • the relevant period is the period between these dates inclusive
  • Add together the money voted during the relevant period but do not include any money drawn in anticipation of a future vote
  • Calculate the number of whole months in the relevant period, where there are not a whole number of months in the relevant period see SPM170400.
  • Divide the earnings by the number of months in the relevant period to give the average monthly earnings
  • Multiply the average monthly earnings by 12 to give an average annual earnings figure
  • Divide the average annual earnings by 52 to give the AWE.

Payment in advance of Annual Vote

A directors earnings paid in advance of being voted at the end of the year has caused difficulties because there is a difference in their treatment for NICs and SP purposes.

For NICs purposes the earnings are treated as paid at the time payment was made and NICs are deducted but for SP purposes the earnings were not treated as paid until the vote had taken place.

The Companies (Model Articles) Regulations 2008 (S.I.2008/3229) which came into force on 1 October 2009 changed the position for companies incorporated under these regulations and this impacts the meaning of earnings for Statutory Payments for these companies.

The regulations provide new Articles of Association for these companies and will:

  • apply by default if other Articles are not adopted
  • allow its directors to determine a directors remuneration

    • Directors can decide what and when to pay remuneration. There is no need for a resolution of the company’s shareholders at its Annual General Meeting (AGM).
    • In such cases payment of director’s fees will be regarded as earnings for the purpose of entitlement to SSP/SMP/SAP/SPP/ASPP on the date payment was made.