HMRC won’t be getting a penalty against Middlesbrough FC

14 May 2019

  • Notice of Underpayments rescinded following a ruling that deductions in respect of employee’s purchase of season cards from their employer are not to be treated as reducing pay for NMW purposes
  • Middlesbrough FC therefore entitled to make deductions in respect of the season cards
  • HMRC did not act unreasonably in issuing the Notices and so no costs will be awarded

The long-awaited case transcript of Middlesbrough Football & Athletic Company (1986) Limited v HMRC (“MFC”) has been published and makes for a very interesting read.

None of the employees were contractually obliged to purchase season tickets and did so on behalf of family members. MFC agreed to the employees request that the cost of the ticket be deducted from their wages over a number of weeks and an agreement was drawn up.

Aspire Comment

The National Minimum Wage Regulations 2015 (“the Regulations”), in particular Regulation 12, sets out whether or not a deduction is permitted. According to HMRC, the deductions brought the employees pay below the correct level of National Minimum Wage (“NMW”) in force at the time.

Judge Pitt’s decision in favour of MFC, stated that;

  1. The deductions did benefit the employer despite arguments to the contrary and so for the deductions to not be considered as “reducing pay for NMW” they would have to fall within one or more of the exceptions set out in Regulation 12(2) of the Regulations
  2. Having regard to Regulation 12 (2) (a), (b) and (e);​
    • The employee was not contractually liable for the deductions and so the exception under 12(2)(a) does not apply
    • The agreements in place do not refer to the arrangement as a loan and  from the understanding of the arrangement and in reference to the dictionary definition of the word “loan”, the Judge concluded that the arrangement was not a loan and so the exception under 12(2)(e) does not apply
    • After deliberation over the wording used, “deduction” versus “payment”, the Judge concluded that;

                           "...​​the deductions as respect the purchase of the season card…are not to be treated as a reduction.

The workers were not required to purchase the season cards in connection with their employment…

Whilst this will potentially be a welcome decision for employers who operate similar arrangements, it is important to remember that this decision is not legally binding on any other Tribunal and was made in regard to very specific circumstances where the purchase was made on behalf of relatives of the employee rather than the employee themselves.

The Judge also adopted a ‘purposive approach’ in interpreting Regulation 12(2)(e) and the outcome of the case relies on the Judge’s own interpretation that the arrangements could be considered “payments” rather than “deductions”. It is highly possible that another Judge may reach a different conclusion should HMRC appeal the decision.

We do not consider that MFC’s success will prevent HMRC from challenging arrangements in the future in what remains an extremely complex area of legislation.