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HMRC cracks down on Iceland's "Christmas Club"

View profile for Lucy Sorell

Iceland faces a sizeable bill from HMRC in the wake of allegations that it has breached National Minimum Wage (NMW) legislation. The supermarket ran a savings scheme whereby staff chose to have amounts deducted from their wages to save in a separate account in the runup to Christmas. This technically brought their pay below the minimum wage. 

If Iceland is unsuccessful in its dispute with HMRC, it will owe in the region of £21 million, given the number of deductions made over the years. 

The BEIS NMW guidance is somewhat contradictory on the matter of voluntary deductions from pay. Employers can make deductions for goods and services that the employee has freely chosen to buy from it, without reducing pay for NMW purposes. Yet employers cannot make deductions for certain benefits in kind, whether or not they have a monetary value, without reducing pay for NMW purposes. It may be that HMRC sees the ability to save through the Christmas Club as a valueless benefit in kind rather than a service provided by the employer, particularly as the employees involved are not paying for a service but taking the opportunity to put money to one side. It will be interesting to see how Iceland chooses to classify the Christmas Club as the case develops further.