FINANCE BILL 2002: EXPLANATORY NOTE
CLAUSE 35:STATUTORY PATERNITY PAY AND STATUTORY ADOPTION PAY
SUMMARY
This clause changes part of the Income and Corporation Taxes Act 1988 to make Statutory Paternity Pay and Statutory Adoption Pay subject to tax. Statutory Paternity Pay or Statutory Adoption pay will be introduced for babies due and children placed for adoption in April 2003. Both will be paid by employers to replace part of their employees? earnings. The new schemes are designed to work along the same lines as Statutory Maternity Pay. Since payments under the new schemes will be replacement earnings they will be subject to tax. Statutory Maternity Pay is already subject to tax. Section 150 of the Income and Corporation Taxes Act 1988 sets out a number of payments that are subject to tax including Statutory Maternity Pay. This clause simply includes payments under the new schemes in that list.
BACKGROUND
The legislation introducing Statutory Paternity Pay and Statutory Adoption Pay forms part I of the Employment Bill. These new schemes were proposed in the DTI Green Paper "Work and Parents; Competitiveness and Choice" published in 1999. The introduction of the new schemes was announced in the 2001 budget statement. The Employment Bill provides adoptive parents with the same rights to leave and pay at the time of an adoption as new mothers have at the time of the birth of a new baby. There are also new rights to leave and pay at the time of birth or adoption for new fathers.
During consultation on the DTI Green Paper employers asked that the new schemes should operate as closely as possible to the existing Statutory Maternity Pay scheme. This clause ensures that payments of Statutory Paternity and Adoption Pay are treated for tax purposes in exactly the same way as Statutory Maternity Pay.