Campus Living Villages UK v. HMRC and Sexton
In this case, the First Tax Tribunal ("FTT") made clear that if a settlement agreement is to settle claims for Statutory Maternity Pay ("SMP"), this must be expressly stated in the agreement.
The claimant was made redundant whilst she was pregnant and claimed unfair dismissal and discrimination on grounds of pregnancy related dismissal. As the claimant remained employed within 11 weeks of her expected week of childbirth, she was entitled to SMP. Further to the ACAS conciliation process, the case was settled by way of a COT3 form. The COT3 form confirmed that it settled "all and any claims [the claimant] may have relating to her contract of employment and its termination". The employer had intended that the payment be made in full and final settlement of all of the claims, including SMP. The claimant then complained to HMRC that she had not received her SMP.
HMRC held that the claimant was entitled to receive her SMP. HMRC noted that the COT3 form did not expressly state that SMP was included in the settlement payment and that the employer had not deducted tax and national insurance contributions, which it should have done if an apportionment of the settlement payment had been SMP. HMRC also stated that the claimant's discretionary bonus, which she had received during the SMP calculation reference period, should be used to calculate her average normal weekly earnings for SMP purposes.
The FTT upheld HMRC's decision. The FTT confirmed 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.
This case serves as a reminder to employers that if entitlement to SMP is to be included and effectively waived in a settlement agreement, it must be expressly stated. Moreover, SMP should be identifiable in a breakdown of compensation showing how it was calculated and that it was subject to appropriate tax and national insurance deductions.