HMRC’s Minimum Wage Unit Is Entirely Insane

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1922

Her Majesty’s Revenue and Customs is tasked with enforcing the minimum wage legislation in the United Kingdom. Unfortunately the unit which deals with this has gone entirely insane. They are insisting that if you save some portion of your minimum wage wages then you are not being paid the minimum wage. It’s possible that they’ve not thought this through – or perhaps that they have in fact gone stark staring mad.

Iceland runs a scheme whereby you can save some of your wages up into a Christmas bolus of spending. The other part here, about shoes, that’s one of those grey areas. Seems pretty silly but given the quality of legislation writing these days this is just how things are sorted out. Parliament doesn’t provide the necessary detail, the courts do as everyone argues about stuff. But the savings club is the argument of nutters:

A Christmas savings scheme offered to staff at Iceland Foods has backfired spectacularly after HM Revenue & Customs accused the company of breaching minimum wage rules and threatened it with a bill of at least £21 million to put right. Sir Malcolm Walker, Iceland’s founder and chief executive, described the dispute — about a scheme that helps low-paid staff to set aside money over the year to help to pay for Christmas — as “just madness”. Iceland is also accused of breaching minimum wage rules because it issued guidance for shopfloor staff to wear “sensible shoes”. HMRC said that staff should be compensated for shoes they had bought to wear to work. The tax authority is claiming that because staff voluntarily had sums deducted from their weekly wage packets — to be saved in a separate account and returned on demand, usually at Christmas — their pay technically had fallen below the minimum wage. The alleged underpayment is of about £3.5 million a year for six years, even though staff chose to participate in the scheme and received all the money they had put in. Iceland also may have to pay a fine that in a worst-case scenario could be double the amount of the alleged underpayment, potentially a further £21 million hit.

Gibbering lunatics.

No, really. So, consider this. The government insists that as someone earning a living you must save for your future. So much so that you don’t have a choice, it’s called automatic enrolment in a pensions scheme.

In the past, many workers missed out on valuable pension benefits, because their employer didn’t offer them a pension, or they didn’t apply to join their company’s pension scheme. Automatic enrolment changes this. It makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme. The employer must also pay money into the scheme.

Yes, you do have to cough up yourself:

Your employer must pay some of the minimum total contribution. If the employer doesn’t pay all of the minimum total contribution, you will need to make up some of the difference. The Government will also pay into your pension pot by giving you tax relief on your contributions However, even if you don’t pay Income Tax, you’ll still get tax relief if your pension scheme uses relief at source to add tax relief to your pension pot.

The minimum income to be stuck into an automatic pensions scheme is below the income tax limit. That income tax limit is below full year, full time, minimum wage. So, government is insisting that you must save some portion of your minimum wage. And dollars to donuts they’re not then saying that your pensions contributions mean you fall below minimum wage. But HMRC is insisting that if you save for Christmas you are. They’re mad.

But we can take this further. Your national insurance contributions are again you saving for your future. You’ve got to have paid for some number of years to gain a state pension – NI is saving. And yes, you do still pay NI on the minimum wage. So, government actually takes from you, as forced savings, some part of your minimum wage income. They do not then say that because you’re paying NI you are not making minimum wage. But HMRC is, because they’re stark staring mad, insisting that saving for Christmas means you are getting less than minimum wage.

Yes, HMRC is entirely nutso. Or simply ignorant of course.

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ian parkinsonPJHHMatt RyanJonathan Harston Recent comment authors
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Matt Ryan
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Matt Ryan

Just for completeness (as everyone reading here will already know), NI contributions are not in any way savings.

The government has no pot of cash set aside to fund your pension (in case you were labouring under this impression).

No point in complaining that you have “paid in all your life” for the square root of sod all when it comes to pension time as it was all spent the year the government took it from you (or not before depending on how large the budget debt/deficit was).

PJHH
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PJHH

“If the employer doesn’t pay all of the minimum total contribution, you will need to make up some of the difference”

Except, if making such a contribution via salary sacrifice, doing so cannot take your wage below the Income for Living Minimally Wage*: https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye#overview

*Or whatever they’re calling it this year.

Jonathan Harston
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Jonathan Harston

“HMRC said that staff should be compensated for shoes they had bought to wear to work”
Yes, and they are – by the MHbloodyRC. Work-related expenses for work-related equipment is tax-deductable expenses, and while minimum wage still pays enough to pay tax you can get it back from the Tax Man.

ian parkinson
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ian parkinson

On the shoe one – I understand that the employer provided shoes but staff had the option to buy their own instead. HMRC is alleging that those who chose to buy their own shoes were underpaid.

Utterly bonkers