The supermarket ran a scheme that allowed low-paid workers to voluntarily set aside a percentage of their wages which would then be returned to them at a pre-arranged time, often at Christmas.

As a result of offering this scheme, HMRC claims that Iceland was providing wages that were below the level of the minimum wage, breaching the National Minimum Wage Act 1998 (NMWA 1998).

HMRC has calculated that Iceland underpaid staff about £3.5m a year for six years, despite staff deciding to take part in the scheme and received all the money they had set aside. Iceland potentially faces a fine of up to double the amount of the alleged underpayment.

The Christmas Club is a voluntary scheme, with the money accrued ringfenced in a separate account and controlled by an independent trustee company whose directors are unconnected to Iceland.

HMRC also believes Iceland should have compensated staff for the footwear that some staff, such as those who were employed in warehouses, were required to wear to work. Iceland provides safety shoes, free of charge, for use in warehouses and these are available to employees on request.

Founded in 1970, Iceland operates from more than 800 locations in the UK, employing more than 23,000 staff. In 2018, its operating profit was £110m. According to Keith Hann, director of corporate affairs at Iceland, ‘we are naturally somewhat irked at being pursued at potentially huge cost for a technical breach of the minimum wage rules over a voluntary deduction which has already been repaid in full to all the participants.

‘The action seems particularly ill-timed given the well-publicised pressures from business rates and declining footfall from which all high street retailers are suffering.’

Commenting on the news Steven Porter, partner at Pinsent Masons said: 'HMRC has got the bit between its teeth when it comes to national minimum wage (NMW) rules and looks determined to pursue anything it sees as a breach.

'Much of the difficulty arises from HMRC's policing of NMW as it seemingly draws no distinction between technical breaches arising from uncertainty in the law and its application and deliberate underpayments.

'Iceland has previously been open with HMRC's policing of its NMW affairs and is understandably disgruntled given the employees do actually receive the money they saved via the Christmas savings scheme.'

According to data provided by Pinsent Masons, the number of investigations opened by HMRC into employers over potential breaches of the NMW has increased 43% in a year to 3,975 in 2017/18, up from 2,775 in 2016/17. 

Report by James Bunney