COMPLIANCE
Savings scheme breaches minimum wage rules
Justine Riccomini MSc FFTA AIPA Chartered MCIPD ChFCIPP, head of employment and devolved taxes, the Institute of Chartered Accountants of Scotland (ICAS), explains why HM Revenue and Customs (HMRC) won its national minimum wage (NMW) case concerning an employee savings scheme O n 23 July 2024, HMRC was successful at the Employment Appeal Tribunal (EAT) when the court found against Lees of Scotland.
appealed to the employment tribunal (ET) which concluded that there had been no intention on the company’s part to benefit from the deductions or underpayment of the NMW. “If savings club funds are deducted from employees and then held in a company bank account which the employer is free to access and use, the employer receives a benefit from the scheme” HMRC’s stance Previous work undertaken by HMRC in this area tells us that if savings club funds are deducted from employees and then held in a company bank account which the employer is free to access and use, the employer receives a benefit from the scheme.
There is a great similarity between this case and the Iceland case (see https://ow.ly/oIOc50UeYxl) concerning a Christmas savings club which was deemed to fall foul of NMW regulations back in 2019 and led to the business facing a £21m arrears assessment. What did the court conclude? The EAT found in favour of HMRC, overturning the earlier ET decision and ultimately concluding that the ET had asked the wrong question. The right question would have been to determine whether there was any form of legal limitation on the use of funds set aside by the company for holiday savings. As things stood, the monies were retained as part of Lees’ main business account and the company could therefore potentially benefit from earning interest on those additional amounts. This enabled the funds to be used to “benefit the business”. Learning point In this case, the EAT acknowledged that had the holiday fund been kept in a separate, third-party account, there would have been no breach of NMW. n
While this case is not a tax one, it does contain important information for those involved in employment taxes and payroll, because of the decision made by the court in relation to NMW and a savings scheme which had been run by the company for 30 years to help employees save for their holidays.
What happened? Lees of Scotland is a producer of
Scottish food products. It allowed staff to voluntarily make savings throughout the year by paying money into a holiday fund. When some staff made contributions, those contributions were classified as money “unlawfully deducted” from their wages, which technically meant under NMW legislation that their pay fell below the NMW rates in place at that time (see https://ow.ly/8jM550UeYvg). HMRC issued Lees with an arrears notice of assessment totalling £81,000 in respect of the employees named in the assessment who were deemed to be affected by the deductions. Lees
| Professional in Payroll, Pensions and Reward | February 2025 | Issue 107 20
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