The case of Campus Living Villages UK v. HMRC and Sexton is a reminder to employers that, if a Statutory Maternity Payment (SMP) is included in a settlement agreement, this must be made clear.
Ms Sexton, the Head of Finance at Campus Living Villages UK (CLV) was made redundant whilst she was pregnant. Ms Sexton claimed against the appellant for unfair dismissal and pregnancy dismissal. The claim was settled in a COT3 Form following conciliation by ACAS.
Ms Sexton was owed an SMP payment even though she was no longer going to be an employee at CLV, as she was made redundant within 11 weeks of her due date. During negotiations, Ms Sexton initially calculated that her entitlement to "maternity pay entitlement" was £41,143.45, which was calculated with reference to her salary during maternity leave, rather than an SMP calculation.
The claim was compromised and she was ultimately paid £60,000 by CLV. Ms Sexton's settlement agreement confirmed that the settlement applied to "all and any claims" and that it was not limited to the legislation set out in the agreement. CLV had intended this settlement to be full and final, including SMP, but the agreement did not specifically refer to SMP.
Ms Sexton subsequently complained to HMRC that she had not received her SMP.
HMRC held that Ms Sexton was entitled to receive an SMP payment, and that the apportionment for "maternity pay entitlement" in the settlement agreement was not SMP, as it did not explicitly refer to SMP. Further, if the employer had wanted to pay SMP, then tax and national insurance contributions should have been deducted, and they were not.
HMRC also noted that CLV should have taken into account a £44,000 bonus payment which Ms Sexton had received during the eight-week reference period for SMP. Under current legislation, any earnings, including discretionary bonuses or other one-off payments, are included in the calculation of SMP if they happen to fall within the reference period. It does not matter that such payments are not "usual" earnings.
CLV appealed HMRC's decision to the First Tax Tribunal (FTT), on the grounds that: (1) it had implicitly included SMP in its settlement payment; (2) the bonus payment should not have been included; and (3) an ACAS officer had approved the settlement agreement. The FTT upheld HMRC's decision on each point. It commented that it was "unfortunate" that CLV was incorrectly advised by ACAS, but that HMRC was correct in its decision.
This decision illustrates the need for employers to be careful when paying SMP under a settlement agreement. If it is not explicitly referred to in the agreement, employers could face unexpected payment requests from HMRC.
If SMP is to be paid under a settlement agreement, employers should ensure the following:
- SMP is expressly referenced and includes a breakdown of how it was calculated in a settlement agreement;
- tax and national insurance contributions are deducted in respect of SMP, and this is expressly stated;
- if any one-off or irregular payments (e.g. bonus) are made during the eight-week reference period, these must be included in SMP calculations; and
- even if an ACAS officer has assisted with or approved a settlement agreement, this will not affect HMRC's application of the law, and so cannot be relied upon as a failsafe.