The frozen food retailer Iceland has come under fire from HMRC over their voluntary employee savings scheme. The scheme, which retains a percentage of employee wages to be paid as a lump sum at a later date (usually Christmas), has supposedly breached minimum wage rules.

This is part of a 43% increase in investigations into National Minimum Wage (NMW) in the last 12 months, which suggests that HMRC are once again putting easy revenue gain before tackling the real cracks in the economy.

Iceland’s voluntary employee saving scheme

There’s no reason to doubt that Iceland is a good firm to work for. Twice in the last 10 years, the frozen food company has been voted the Best Big Company to Work for in the UK, and still featured at no. 8 this year. They were also the second best payer of front of line staff on the high street for many years - beating M&S and John Lewis - and still maintain that they pay staff as much as the company can afford.

Despite annual wage increases in line with inflation, the introduction of the National Living Wage brought Iceland’s rates much closer to the NMW line. This also brought them under the unfortunate scrutiny of HMRC’s Minimum Wage task force.

Their biggest offence is the ‘Christmas Club’, which allows employees to save throughout the year to accommodate for festive spending. It’s entirely voluntary, staff don’t need to spend the savings at Iceland and the money can be claimed back at any time.

However, due to the savings being stored in a ring-fenced company bank account (which separates core retail banking from investment banking), HMRC claims that the scheme is, in fact, a wage deduction for Iceland’s benefit and has the potential to push some employees under the NMW line. That those same employees have to willingly opt in and can receive their money back in full at any time appears irrelevant to HMRC.

HMRC’s frigid investigation approach

As seems to be a common theme amongst HMRC’s latest endeavours, this investigation has caused outcry.

Sir Malcom Walker - founder, chairman and chief executive of Iceland Foods Ltd – branded HMRC’s allegations ‘just madness’ while speaking to The Times, and has publicly resolved to fight the claim.

He has in fact been speaking out about the investigation since May last year, most notably in a scathing blog post on the Iceland website.

He states: ‘Given that we have well over £100m of cash in our other bank accounts, you might think the idea of us raiding this one seems a little fanciful. But the HMRC team has wasted many hours of our management time on this issue, and remains hopeful of bridging the Treasury’s funding gap with a fine running into tens of millions of pounds.

You’d think HMRC might put more effort into chasing the £1bn of corporation tax successfully avoided by the likes of Apple, Facebook and Google, or the VAT dodged on Amazon and eBay for which they castigated by the Commons Public Accounts Committee last year.

Iceland, in contrast, has paid nearly £1.3bn into the Exchequer in the last decade.’

HMRC's predatory priorities

HMRC states that the alleged underpayment amounts to a devastating £21m and the fine itself could be double.

Of course, the ‘Christmas Club’ saving scheme isn’t the only offence. Iceland has also fallen foul of the ‘employee uniform compensation’ guidelines. HMRC claims that because ‘sensible shoes’ are advised as part of the staff dress code, they should be reimbursed by the company – despite no logos being featured, no brand specified and items like said shoes being considered as dual purpose by HMRC even just a few years ago. These guidelines only apply to retail staff as Iceland warehouse workers are already supplied with free safety boots.

These allegations smack of Wagamama’s run-in with HMRC early last year, who ended up repaying an average of £50 to 2,630 employees – an astronomical total of £131,500.

Steven Porter, a partner at Pinsent Masons, recognises that the uniform element crops up frequently in HMRC NMW task force investigations, but the savings scheme adds a layer of intrigue. He states that ‘HMRC has got the bit between its teeth when it comes to National Minimum Wage rules and looks determined to pursue anything it sees as a breach’.

Mr. Porter also comments on HMRC’s lack of discrimination between illegal breaches and innocent misunderstandings of the law, an issue that was discussed extensively in the damning House of Lords report on HMRC’s abuse of power.

He adds: ‘HMRC are policing innocent breaches arising from uncertainty in the law. There appears to be no grading in that respect. I can see where HMRC are coming from, technically speaking those employees didn’t receive the right amount of money. But the legislation is very mechanical and Iceland are trying operate commercially and help their employees.”

Graham Webber CTA, Director of WTT Consulting Ltd, has also commented on HMRC’s dubious approach to clawing money back.

He asks: ‘Why is HMRC chasing retailers already struggling for technical breaches of a law that have no financial impact on employees? A perfect example of an out of control HMRC, desperate to do anything except go after the real money leaking from the economy. Once again a soft target chosen over one who might fight back. Time for a Parliamentary enquiry into whether HMRC is fit for purpose and subject to appropriate oversight.’

Mr. Webber concludes the events perfectly; HMRC is well overdue a thorough investigation of their own.