Lesson 5 · Pregnancy & Parenthood
You have an accountant. This is not their job replaced — it's you knowing which levers exist, which are worth real money, and which questions only you can answer for them.
Lesson 2 was the statutory scheme: what the state pays, and when. This is the other half — the bit you actually control. A one-person limited company with a director who chooses his own salary, his own dividends and his own timing has more levers than an employee does. Most of them are worth nothing. Two are worth thousands.
The picture changed twice in two days, so here it is settled. This tax year you drew about £10,000 of PAYE salary from a previous employer, left, and have paid yourself in dividends from TWP since. Roughly £2,000 of personal allowance remains. That produces one bad answer and two good ones.
Statutory paternity pay is paid by an employer you are still employed by, and is tested on your average weekly earnings in the eight weeks ending with the qualifying week — the last normal payday on or before Saturday 30 January 2027.² Not the tax year. The old employer fails it because you've left; TWP fails it because it pays you dividends, and dividends carry no National Insurance and are not earnings for any statutory payment. Even if TWP started a payroll tomorrow, the whole exercise is worth about £80 net once you account for tax on the extra salary and the company's 109% reclaim.³ You called it correctly: ignore it.
That £10,000 of salary cleared the £6,708 lower earnings limit, which is what buys a qualifying year toward the state pension. So TWP does not need to run payroll at all this tax year — the thing a director's salary is usually for, you already have. The decision comes back on 6 April 2027, and a dividends-only 2027/28 would cost you that year. It's an annual tick-box, and it's cheap: a salary at the lower earnings limit costs the company about £256 in employer NI.⁷
The basic rate band ends at £50,270 of total income. With £10,000 of salary in it already, that leaves about £40,000 of dividends you can take before 5 April 2027 at 10.75% — the first ~£2,000 covered by your remaining personal allowance and a further £500 by the dividend allowance, both at 0%. Everything past £50,270 is taxed at 35.75%. That headroom figure is the number to plan the year around.
You are unusually well placed for the year ahead: pension year secured, a large basic-rate runway still open, and total control of when you take it. The job between now and April is not to extract as much as possible — it's to take what the household needs, leave the rest at 19% corporation tax inside TWP, and start 2027/28 with a fresh personal allowance and a fresh basic-rate band in the year the baby actually arrives and Pud Pud's income collapses.
Both are about when you take money out, not how much. You control the timing of every dividend; almost nobody else in the country can say that.
Dividends are taxed at 10.75% while your total income sits inside the basic rate band, and 35.75% above it.¹ That is not a taper. It's a cliff at £50,270 of total income, salary included. Ten thousand pounds taken below the line costs £1,075; the same ten thousand above it costs £3,575.
You have two tax years to work with — 2026/27 ends 5 April 2027, a month before the baby is due — and the ability to leave profit in the company. Profit retained in TWP is taxed at 19% corporation tax and nothing else until you take it. Splitting a large draw across 6 April instead of taking it in one year is the single highest-value thing on this page.
Child Benefit is £27.05/week (~£1,407/yr) and is not means-tested — but above £60,000 of adjusted net income you repay 1% of it for every £200 over, and it's all gone by £80,000.⁴ Between those two numbers your effective tax rate on dividends is roughly 42.8%, not 35.75%.
Two things reduce adjusted net income: pension contributions and Gift Aid.⁴ An employer pension contribution from TWP is corporation-tax deductible, carries no NI at all, and pulls your income back down under the threshold. The catch is real, though: that money is locked until 57, and what this household needs in 2027 is liquidity. Know the lever exists; probably don't pull it this year.
Even if every penny gets clawed back, claim Child Benefit, and have Pud Pud be the claimant while she isn't working — the claim carries a National Insurance credit toward her state pension for each year she's caring for a child under 12. You can tick the box to receive £0 and keep the credit. People who "didn't bother because we'd only pay it back" lose the credits for nothing.
In 2027/28 Pud Pud's taxable income falls off a cliff: SMP is six weeks at 90% of her salary and then 33 weeks at £194.32, which is likely to land under the £12,570 personal allowance — leaving a few thousand pounds of tax-free allowance, and a large chunk of unused basic-rate band, going to waste.
The standard move is to make her a shareholder in the company and pay dividends into that unused allowance. For married couples this is routine and specifically protected: an outright gift of ordinary shares between spouses is exempted from the settlements legislation, the anti-avoidance rule that otherwise taxes the income back on the person who generated it. That exemption is spouses and civil partners only. It does not extend to an unmarried partner, however long you've been together.
This is a genuine, quantifiable financial difference between your situation and the married version of it, and it isn't the only one: unmarried partners also have no inheritance tax spouse exemption and no automatic intestacy rights if one of you dies. That last one is the serious one, and it arrives with the baby. Whatever you decide about marriage, wills and guardianship are a separate job that needs doing before May — a future lesson, but start thinking about it now.
Yesterday's conclusion stands: means-tested support is the door that's actually open to you. But it has a hard edge you need to see before you plan around it.
| Rule | What it means for you |
|---|---|
| £16,000 capital limit⁵ | Money, savings and investments above £16,000 and you cannot claim at all. Between £6,000 and £16,000 the award tapers. |
| Directors treated as self-employed | You can't shelter income by leaving it in the company and calling yourself unemployed. The minimum income floor can also assume you earn more than TWP actually pays you. |
| Sure Start Maternity Grant — £500⁶ | First child, one-off, never repaid — but only if one of you is on UC or a similar benefit. Window: ≈21 Feb 2027 to 9 Nov 2027. No UC, no £500. |
So the two strategies are mutually exclusive. A cash buffer big enough to cover your time off will put you over the £16,000 line and end any UC claim — and take the £500 grant with it. That's not an argument against the buffer. The buffer is worth more than the grant and it isn't close. It's an argument for deciding deliberately, and for getting an eligibility check done in early 2027 rather than assuming either way.
Her £2,750/month take-home implies a gross salary of roughly £41,000, or £788 a week. That's what SMP is calculated from, and it produces a very specific shape: six good weeks, then a cliff.
| Period | She receives | Gap vs now |
|---|---|---|
| Weeks 1–6 ≈25 Apr – 5 Jun 2027 | 90% of £788 = £710/wk, and it falls inside her personal allowance so it's barely taxed | None. She's marginally better off than now. Do not let this fool either of you. |
| Weeks 7–39 ≈6 Jun 2027 – 23 Jan 2028 | Flat-rate SMP, £194.32/wk — about £842/month | −£440/week. Over 33 weeks: −£14,530 |
| From ≈23 Jan 2028 | £0. SMP exhausted, and the contract ended 28 May 2027 so there is no job to return to | −£635/week until she's earning again |
Your side is simpler and blunter: TWP pays you about £2,000/month, and it pays that because you work. Every month you don't, the household loses two thousand pounds. That is the true price of your paternity leave — not the £389 of SPP we spent yesterday arguing about.
Tier 1 — £17,700. The SMP gap (£14,530) + four weeks of you not working (£2,000) + baby kit bought sensibly, pram, car seat, cot (~£1,200). This is the version where you get a month with your child and nobody watches the balance.
Tier 2 — £26,000. Tier 1 plus three months past the SMP cliff in January 2028, when she has no income at all and no job to go back to. This is the version where she isn't forced to take the first thing offered.
You have roughly eight earning months before the birth, and once she's on flat-rate SMP saving becomes impossible. Household income right now is £2,750 + £2,000 = £4,750/month. So:
Live on Pud Pud's salary. Bank every pound of TWP's dividends. £2,000 × 8 months = £16,000 — which, with anything already put by, lands on Tier 1 almost exactly. It is a single rule, it needs no spreadsheet, and it is testable every month.
Two refinements worth making, both of which your accountant will nod at:
A £16,000+ buffer sits on or over the UC capital limit, so Universal Credit is out, and the £500 Sure Start Maternity Grant goes with it. That's the right trade — the buffer is worth thirty times the grant — but it means you should stop planning around either. Money held inside the company is treated differently from personal savings, which is exactly the kind of thing to put to your accountant rather than to me.
You have one; use them properly. These are the five questions where a generic answer is wrong and only your numbers settle it:
Which period do your earnings have to clear the £129/week limit in, for SPP?
Average weekly earnings are measured over the eight weeks ending with the last normal payday on or before the Saturday of the qualifying week — 30 January 2027. Salary drawn in the spring doesn't count. It's why dividends-only from now would zero the entitlement, and why the whole question is worth about £80.
Late March 2027. You've taken £48,000 and need £10,000 more. Cheapest legal move?
Only £2,270 fits under the £50,270 cliff this year at 10.75%; the rest would be taxed at 35.75%. Splitting across the tax years keeps more of it in the basic band — up to £2,500 saved per £10,000 moved. Salary is worse still (income tax plus both NIs), and an unrepaid director's loan triggers a s.455 charge.
Between £60,000 and £80,000 of income, what happens to Child Benefit?
It's repaid through self-assessment, 1% per £200 over £60,000, gone entirely at £80,000 — an effective rate of about 42.8% on dividends in that band. Claim regardless: Pud Pud as claimant collects an NI credit toward her state pension for every year she's caring for a child under 12, and you can elect to receive £0 and keep the credit.
Why can't you simply give Pud Pud shares to use her spare personal allowance?
Gifting ordinary shares between spouses or civil partners is specifically exempted from the settlements legislation, so the income stays taxed on the recipient. Unmarried partners get no such exemption and the income can be taxed back on you. Accountant question — and one of several places (inheritance tax, intestacy) where the married and unmarried versions of your situation differ materially.
Spacing check, from Lesson 4: which form gets you free NHS prescriptions and dental care?
FW8 → maternity exemption certificate, covering prescriptions and NHS dentistry until the baby is one. MATB1 (from 20 Dec 2026) is the pregnancy certificate her employer needs for SMP. SF100 is the Sure Start Maternity Grant claim. SPP1 is what an employer issues to say you don't qualify for paternity pay.
Free recall: name the two thresholds worth real money to you, and the one rule that decides whether Universal Credit is available at all.