of Scotland Ltd v – Counsel [Instructed by — 2023

HMRC served a Notice of Underpayment on 22 November 2022 in relation to the claimant's holiday savings fund, which was operated for employees over many years. Employees joined voluntarily, authorised deductions from net wages through payroll, and could withdraw their accumulated savings on request. The parties agreed that the first issue was whether those deductions were for the claimant's own use and benefit within regulation 12(1) of the National Minimum Wage Regulations 2015.

The tribunal held that the deductions were not for the claimant's own use and benefit. It accepted that the claimant held the money in its current account and may have obtained incidental interest or cash-flow advantage, but found those were consequences of the arrangement rather than its purpose. Objectively, the deductions were directed by employees to create savings that were contractually repayable on demand, so they were treated as delayed wages rather than deductions made for the employer's benefit. The tribunal distinguished the authorities it discussed, including Leisure Employment and Middlesbrough FC, on the basis that those cases involved deductions that directly discharged or funded an employer-side liability or benefit.

Because the first issue was decided in the claimant's favour, the enforcement notice was rescinded. The tribunal nonetheless addressed the claimant's alternative section 17 National Minimum Wage Act 1998 argument for completeness. It concluded that, if the first issue had gone the other way, payments from the Fund could in principle amount to additional remuneration and would be applied against the earliest outstanding pay reference periods first, but that alternative analysis did not affect the outcome.