Campus Living Villages UK Ltd v Revenue and Customs
This case shows the importance of specifically referring to the
inclusion of statutory maternity pay (SMP) in settlement
Ms Sexton was Head of Finance at Campus Living. She was made
redundant shortly before the birth of her child. As Ms Sexton had
remained employed by her employer within 11 weeks of her expected
week of childbirth, she was entitled to receive SMP from it. She
claimed unfair dismissal and pregnancy discrimination. Her claim
was settled by way of a COT3 agreement following conciliation by
ACAS. The amount she received was £60,000 which included
£20,000 as compensation for injury to feelings, £30,000
paid tax free and £10,000 which had income tax deducted from
it, but not National Insurance. These payments were in "full
and final settlement of all her claims".
Ms Sexton subsequently claimed to HMRC that she had not received
her SMP and that this was worth over £42,000. The reason for
the high figure was that her pay during the eight week reference
period used to calculate her average "normal weekly earnings
for SMP" had been enhanced by the payment of a £44,000
discretionary bonus paid to her under her employer's incentive
scheme. At first instance, HMRC decided that SMP was payable under
social security legislation and should be paid separately as it had
not been included in the settlement.
Campus Living appealed to the Tax Tribunal. It held that HMRC
had been correct to take into account the discretionary bonus when
calculating Ms Sexton's average weekly earnings as (para 39 of
judgment) "'earnings' includes any remuneration or
profit derived from a women's employment... irregular or
one-off payments including bonuses therefore count as
'earnings' as long as they are derived from the woman's
employment". Ms Sexton's employment contract provided for
her participation in the employer's short term incentive scheme
and the Tax Tribunal agreed that the bonus paid to her was
therefore derived from her employment and should be included in the
calculation of SMP.
Separately, the Tax Tribunal went on to consider whether Ms
Sexton could recover SMP even though she had signed the COT3
settlement agreement. It confirmed that receipt of SMP is a
statutory right and cannot be contracted out of. Any agreement
which purports to exclude the right to SMP is void to that extent.
The breakdown of the settlement payment did not include Ms
Sexton's entitlement to SMP, nor were any NI contributions
made, which are required to be made on SMP payments. The fact that
ACAS advised on the settlement agreement did not change the
position as ACAS is independent of HMRC and its acts or omissions
cannot affect HMRC's correct application of the law.
What to take away
It is important to remember that one-off payments such as a
bonus can be included in the calculation of an employee's
earnings for SMP if they are paid during the SMP calculation
reference period. If a claim is settled then the SMP payment should
be clearly identified as a separate sum with the agreement and be
subject to tax and National Insurance contributions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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