The Tax Tribunal’s decision in Campus Living Villages UK Ltd v The Commissioners for Her Majesty’s Revenue and Customs & Joanna A Sexton illustrated the importance of specifically referencing the inclusion of Statutory Maternity Pay in a settlement.
Ms Sexton was employed by Campus Living Villages (Campus Living) as its Head of Finance and was made redundant, whilst she was pregnant. She claimed unfair dismissal and pregnancy discrimination and her claims were settled by way of a COT3 agreement, following conciliation by ACAS. As she was still employed by Campus Living within 11 weeks of her expected week of childbirth, Ms Sexton was entitled to receive Statutory Maternity Pay (SMP) from Campus Living, even though she was no longer going to be employed by them during her maternity leave. Campus Living thought they had dealt with this entitlement to SMP by agreeing to pay Ms Sexton £60,000 in "full and final settlement of all her claims". This clearly meant, thought Campus Living, that Ms Sexton's rights to SMP had been dealt with.
Despite this, Ms Sexton then complained to HMRC (the arbiters of SMP) that she had not received her SMP. This was worth over £42,000 (as her pay during the reference period to calculate SMP had been enhanced by the receipt of a bonus during that time). HMRC upheld her complaint and stated that she should be paid her SMP separately because it hadn't been included in the settlement.
Campus Living then appealed to the Tax Tribunal (where decisions of HMRC are appealed to).
What did the Tax Tribunal Decide?
Could a bonus be ‘earnings’ when calculating SMP, meaning it is taken into account in working out what SMP should be:
This had already been presumed to be the case by HMRC, but the Tax Tribunal re-confirmed this. If a bonus falls within the reference period for calculating SMP (normally the 8 weeks immediately preceding the 14th week before the week that childbirth is expected (known as the “EWC”)), then it counts.
The Tax Tribunal said that there was no requirement that pay during the 8 week calculation period had to be ‘normal’ or ‘usual’ pay, and that irregular or one-off payments counted towards the employee’s earnings for SMP calculation purposes.
Could Ms Sexton recover SMP even though she’d signed a COT3?
The Tax Tribunal confirmed that an employee has an absolute right to receive SMP and that this right cannot be contracted out of. To settle the claim, Campus Living would have to show that it had specifically paid Ms Sexton’s SMP but the Tax Tribunal was clear that Ms Sexton’s entitlement to SMP had not, in fact, been included.
When deciding that the SMP payment had not been included within the terms of the settlement, the Tax Tribunal took into account the fact that COT3 stated that all the payments would not attract National Insurance, when SMP is in fact subject to both tax and National Insurance.
But ACAS signed it all off?
The Tax Tribunal said that it was ‘unfortunate’ that the conciliation officer had not advised the parties correctly but said that ACAS’s mistakes could not affect HMRC’s correct application of the law.
Remember that when one-off payments are paid within the SMP calculation reference period, they will be taken into consideration when calculating the level of the employee’s earnings for SMP.
- When settling a claim, make sure that any SMP payment is clearly labelled in the agreement and that it is stated to be subject to tax and National Insurance.
- SMP can be paid as a lump sum to the employee, as long as the rules for paying National Insurance contributions are obeyed.