Middlesbrough Football Club loses NMW replay with HMRC

HMRC has scored a victory over Middlesbrough Football Club, currently 19th in the now suspended Championship, at an employment tribunal appeal over underpayments of the national minimum wage (NMW) relating to employee deductions for season tickets

The club operated a payroll deduction arrangement allowing its employees to agree to buy football season tickets by instalments.

In some cases, these deductions took the pay received by employee below the NMW. HMRC therefore issued enforcement notices requiring the club to make up the shortfall of wages and pay statutory penalties.

In March 2019 the club successfully challenged the notices in the Middlesbrough employment tribunal, which found that the deductions amounted to ‘payments as respects the purchase by the worker of goods or services from the employer’, one of five reductions in reckonable pay allowed by NNW regulations.

HMRC went to an employment appeal tribunal (EAT) and has now won its case, reversing this decision. [Commissioners for HM Revenue and Customs and Middlesbrough Football and Athletic company (1986) Ltd Appeal No. UKEAT/0234/19/LA].

The main issue centred on whether or not a deduction made at source by the employer, and kept in the club’s bank account for its own use, met the statutory definition of ‘payment [for] purchase of… services’.

The EAT held that it did not, arguing that the NMW legislation deliberately contrasted payments and deductions, and permitted only the former.

Middlesbrough’s challenge had three elements. It held that the payroll deductions were for the employer’s ‘own use and benefit’; the deductions were not ‘in respect of the worker’s conduct, or any other event’; and nor were they made on account of a ‘loan’ or ‘advance of wages’.

The tribunal said the monies deducted were freely available to be used by the club as it wished, and the deductions were for its benefit, because it thereby secured payment for the season tickets. The fact that the employees also benefited from the arrangement did not affect this.

Barrister George Rowell from Exchange Chambers who represented HMRC, said: ‘This judgment brings a welcome clarification to an area of law which was thrown into confusion by the decision of the Middlesbrough employment tribunal last year.

‘It upholds the fundamental principle that employers are responsible for complying with the minimum wage rules and are barred from contracting out of them except in very limited circumstances.

‘Payroll deductions which take pay below the minimum wage are allowed only within clearly defined statutory exceptions, which do not include schemes to buy the employer’s products.

‘It is now clear that the law requires the money to reach the employee’s pocket before it may be used to make a purchase from the employer.

‘As the EAT held, this approach serves the minimum wage’s purpose of protecting low-paid employees and avoids the need for extensive investigations as to whether the employee exercised a genuine choice about making the purchase or not.’

Commissioners for HM Revenue and Customs v Middlesbrough Football and Athletic Company (1986) Ltd (Case UKEAT/0234/19/LA)

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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