Maternity Rights and Childcare; as clear as mud!
Following the judgement of the Employment Appeal Tribunal (9th March 2016), the question of salary sacrifice and maternity rights has been thrown into question! Was HMRC errant in providing guidance? Are employers now off the hook with provision of non-cash benefits in kind during maternity?
Laura Donaldson refused to enter a salary sacrifice childcare voucher scheme operated by Peninsula because its terms required her to contractually agree that during maternity leave any entitlement would stop. A prior Employment Tribunal rules this as discriminatory under s.18 & 19 Equality Act and reg.9 Maternity Regulations. Under Section 84(1)(a)(b) of ITEPA 2013, a childcare voucher is a ‘non-cash voucher’.
Laura Donaldson was neither present nor represented at the appeal and it was acknowledged as a ‘growing problem in achieving justice’. The EAT remained ‘cautious that we may not have identified all the provisions which might be relevant and any future litigant… therefore express the conclusions to which we have come somewhat tentatively’. Controversy continues!
So was the original advice from HMRC incorrect? The original guidance from HMRC won a CIPP award for its innovation. It was developed along with industry representatives, the Department of Business, Enterprise and Regulatory Reform (now BIS) and the Department of Work and Pension (DWP). The BIS and DWP position is that non-cash benefits such as vouchers must continue to be provided during maternity leave irrespective of any salary sacrifice arrangement.
This specific case was dealing with a complaint on the future maternity leave of the claimant. The appeal decided that the ET had no jurisdiction to consider indirect discrimination. Additionally the matter is whether the employer scheme provides a ‘benefit’ or ‘remuneration’ and that childcare vouchers suspended during any future period of maternity leave being unlawful.
Mr Samson (for Peninsula) argued that salary sacrifice is not the provision of a benefit but a ‘salary diversion’, a dangerous assertion that could be considered to describe a failed salary sacrifice removing tax and NI free reliefs! The EAT did not necessarily accept Mr Samson’s arguments stating ‘that the question whether the benefit of a voucher paid for by “salary sacrifice” is part of remuneration… cannot be resolved as easily as he would argue. Nonetheless, we have been persuaded that it is’.
So in this case the EAT has suggested that ‘It is in reality not a sacrifice but a diversion of salary’, and that they ‘accept that the vouchers is properly regarded as part of remuneration. The fact that is it deemed to be a “non-cash benefit” by the taxing statutes… does not deprive it of this character…The sum by which the voucher is purchase is that which is payable to the employee: for the purpose of the purchase it is diverted… If it were used to purchase goods, it would not be regarded as arranging for a payment in kind’. This conclusion may be considered very dangerous with regards to the true tax position.
The EAT states ‘the Claimant refused’ to join and that ‘She did receive that to which she was contractually entitled’ and the scheme ‘The terms proposed did not constitute unfavourable treatment’. Be warned, the EAT states ‘that we remain apprehensive that we may not have been referred to all the provision that might be relevant’.
So can employer now stop providing benefits in kind whether provided by salary sacrifice or not – I doubt it very much as that is not what the judgement states. Was HMRC wrong in issuing its advice – I would suggest not and the advice remains sound for the majority. Is there now risk to the tax free status if schemes are a diversion of employee pay and not the provision of an alternate employer provided free benefit in kind – possibly if HMRC were to consider now that such arrangement were not really successful salary sacrifice but a diversion of the employee pay. However, Tax Free Childcare vouchers now have a limited shelf life and salary sacrifice is under close scrutiny by the treasury. Clear! Clear as mud!
So can an employer now contractually have an employee give back the car, the phone, stop pension contributions, remove the medical benefit, etc. – this judgement has limited relevance to the question?