Commissioners for Revenue and Customs v Lees of Scotland Limited

For the purposes of regulation 12(1) of the National Minimum Wage Regulations 2015, a deduction is for the employer’s own use and benefit where the employer can use the deducted money. The inquiry concerns the effect on the employer’s position, not the employer’s benign purpose, the worker’s benefit, or a comparative assessment of benefit.

Money retained in the employer’s trading account remains at its disposal despite a contractual obligation to repay it on demand. A savings arrangement avoids the rule only where the funds are fully and effectively alienated, ordinarily to a third-party scheme provider. Refunds of retained savings are not “additional remuneration” under section 17 of the National Minimum Wage Act 1998 merely because they derive from wages previously deducted.

The respondent operated a voluntary holiday savings fund. Participating workers authorised deductions from their net wages. The deductions were retained in the respondent’s main trading account and were repaid on request. For some workers, the deductions reduced pay below the national minimum wage.

HMRC issued a notice of underpayment for arrears of about £81,000. The Employment Tribunal allowed the employer’s appeal and rescinded the notice. It held that the deductions were not for the employer’s own use and benefit under regulation 12(1) of the National Minimum Wage Regulations 2015. Alternatively, it held that payments from the fund were additional remuneration under section 17 of the National Minimum Wage Act 1998.

HMRC appealed on both issues. The central questions were whether retained holiday-fund deductions were for the employer’s own use and benefit, and whether subsequent refunds could reduce statutory minimum-wage arrears.

1. Appeal allowed. The Employment Tribunal erred in law on both issues. The notice of underpayment was restored.

2. Regulation 12(1) of the National Minimum Wage Regulations 2015 requires a purposive construction consistent with the social purpose of securing a readily identifiable minimum cash wage. That construction calls for broad and simple rules. The question is whether the employer can use the money deducted, not whether the deduction was motivated by a benign purpose or whether the worker also benefited.

3. The respondent could use the deductions because they formed part of its main trading account. The sums were not effectively ringfenced, were available to its creditors, were at risk on insolvency, and generated interest. A contractual obligation to repay savings on demand did not alter that conclusion. It would introduce complexity and uncertainty inconsistent with the statutory scheme.

4. A deduction redirected to a third-party savings provider would ordinarily be different because the employer would have fully alienated the money. The Court of Appeal’s passing reference to a savings scheme in Leisure Employment Services was strictly obiter and did not require a different result.

5. The subsequent payments to workers were refunds of savings, not additional remuneration within section 17 of the National Minimum Wage Act 1998. The statutory scheme requires a clear link between pay and the relevant pay reference period, including any uplift under section 17(4). The Tribunal’s presumed allocation of payments to the earliest outstanding periods had no statutory basis and undermined certainty for workers and HMRC.

• Employment Appeal Tribunal: HMRC’s appeal was allowed and the notice of underpayment restored: [2024] EAT 120.
• Employment Tribunal: Allowed the employer’s appeal under section 19C of the National Minimum Wage Act 1998 and rescinded HMRC’s notice of underpayment. Its judgment citation was not stated in the judgment.