The recent decision in NVCS Limited v (1) Commissioners for HMRC and (2) Dare highlights the importance of correctly identifying the basis on which sums are paid under a settlement agreement, and avoiding the temptation to roll separate payments into a global settlement figure.
Mrs Dare was taken on by NVCS as a sales representative in February 2016. In July 2016, she notified the company that she was pregnant and that she intended to take a period of maternity leave. However, shortly after this a dispute arose regarding her performance. As a result, Mrs Dare contacted ACAS in order to initiate early conciliation. Both parties engaged in settlement negotiations and a global figure of £10,000 was reached in ‘full and final settlement of all [Mrs Dare's] claims’. NVCS understood that this figure was inclusive of a claim for approximately £8,000 in statutory maternity pay (SMP) to which Mrs Dare alleged she was entitled.
Mrs Dare left NVCS in September 2016 after the settlement terms had been agreed. However, after receiving the settlement sum she requested payment of her SMP, arguing that she was entitled to SMP in addition to the £10,000. When NVCS refused to pay, Mrs Dare notified HMRC, who investigated the matter and concluded that the SMP had been accounted for and paid under the ACAS agreement.
Mrs Dare appealed to the First Tier Tax Tribunal, which was tasked with deciding whether or not the £10,000 included her SMP entitlement. It found that SMP was a statutory right which could not be excluded by any agreement and therefore could not be settled unless the correct amount of SMP was actually paid. Since the agreement did not make specific reference to SMP (but did make reference to other statutory payments, for example, statutory sick pay), Mrs Dare’s SMP had not been properly accounted for or documented. It was not enough for the company to rely on the phrase “full and final settlement of all claims” and Mrs Dare was entitled to her SMP in addition to the £10,000.
This case is an important reminder to employers making offers of settlement that all payments made under these arrangements should be correctly identified and documented to avoid unforeseen liabilities.