Seaton v Revenue & Customs [2010] UKFTT 270 (TC)

FTT-Tax
Seaton v Revenue & Customs
[2010] UKFTT 270 (TC) · 2010-06-14
Linda Seaton v Revenue & Customs [2010] UKFTT 270 (TC) (14 June 2010) NATIONAL INSURANCE CONTRIBUTIONS Other [2010] UKFTT 270 (TC)                                                                  TC00564   Appeal number: TC/2009/12944   Entitlement to Statutory Sick Pay –  Whether average weekly payment below lower earnings level as a result of unlawful deduction from wages - Yes – Appeal dismissed – Section 163(2) Social Security Contributions and Benefits Act 1992     FIRST-TIER TRIBUNAL   TAX                                                     LINDA SEATON                               Appellant                                                                         - and -                                    THE COMMISSIONERS FOR HER MAJESTY’S                                                    REVENUE AND CUSTOMS               Respondents       TRIBUNAL: John Brooks (Judge)                         Simon Bird (Member)                                                                                                                          Sitting in public at Vintry House, Bristol on 5 May 2010     Mr C R Bagley of Stroud Citizens Advice Bureau for the Appellant   Mrs L Storey of HM Revenue and Customs, for the Respondents         © CROWN COPYRIGHT 2010 DECISION[1]Mrs Linda Seaton appeals against a decision, made by an officer of HM Revenue and Customs (“HMRC”) on 5 September 2007 that she is not entitled to Statutory Sick Pay (“SSP”) for the period 30 May 2006 to 3 December 2006 on the basis that her “average weekly earnings” were below the “lower earnings level” during this period. Facts[2]The following facts which gave rise to this appeal were not disputed.[3]Mrs Seaton commenced employment as a Deputy Manager/care assistant with Mrs Folashade Bamgbala trading as Sharpness Residential Nursing Home on 27 December 1996. Her normal working days were Monday to Thursday and her normal payday was the last Friday of the month when a BACS payment was made into her bank account. The last day she worked was Thursday 18 May 2006 and she reported her sickness to her employer on Monday 22 May 2006. The period for which Mrs Seaton claims SSP is from 22 May 2006 to 1 December 2006.[4]However, despite being issued with payslips for March, April and May 2006, Mrs Seaton was not paid by her employer during these months and only received payment of her net wages on 30 August 2006 following a successful claim in the Employment Tribunal against Mrs Bamgbala for unlawful deduction of wages.[5]As she had not received any SSP in respect of the period when she was unable to work Mrs Seaton contacted the Statutory Payments Disputes team of HMRC on 1 November 2006. After being provided with payslips HMRC concluded that as she had not received any wages between 24 March and 19 May 2006, Mrs Seaton was not entitled to SSP.[6]At the time she became unable to work because of her sickness Mrs Seaton was earning £264 a week from her employment. Between April 2006 and April 2007 the lower earnings limit at which primary Class 1 NIC become payable was £84 per week.[7]It is accepted that if Mrs Seaton succeeds in her appeal the SSP will be paid by HMRC as her former employer, Mrs Bamgbala, who would be responsible for payment is no longer resident in the United Kingdom. Legislation[8]Unless otherwise stated all subsequent statutory references in this decision are to the Social Security Contributions and Benefits Act 1992.[9]Where an employee has a day of incapacity for work in relation to a contract of service with an employer that employer is liable to pay SSP to his employee under s. 151 provided that the conditions set out in ss. 152 to 154 are satisfied.[10]The condition with which this appeal is concerned is that set out in s. 153(1). This requires the day(s) for which SSP is claimed to fall within “a period of entitlement” which is defined in s. 153(2) as: … a period beginning with the commencement of a period of incapacity for work and ending with which ever of the following first occurs—(a) the termination of the period of incapacity for work;(b) the day on which the employee reaches … his maximum entitled to [SSP];(c) the day on which  the employee’s contract of service with the employer concerned expires or is brought to an end;(d) in the case of an employee who is, or has been, pregnant, the day immediately preceding the beginning of the disqualifying period.[11]However, schedule 11 specifies circumstances in which a period of entitlement does not arise in relation to a particular period of incapacity for work (s. 153(3)). One such set of circumstances specified in schedule 11, which precludes an period of entitlement from arising, is that “at the relevant date the employee’s normal weekly earnings are less than the lower earnings limit [at which primary Class 1 NIC become payable] then in force” (paragraph 2(c) schedule 11).[12]The “relevant date” means the date on which a period of entitlement would arise if not prevented by schedule 11 (paragraph 3 schedule 11). In this case the relevant date is 22 May 2006.[13]Insofar as it is relevant to this appeal s. 163 provides:(1) …(2) … an employee’s normal weekly earnings shall  … be taken to be the average weekly earnings which in the relevant period have been paid to him … under his contract of service with the employer in question.(3) For the purpose of subsection (2) above the expressions “earnings” and “relevant period” shall have the meaning given to them by regulations.(4) – (7) …[14]Regulation 19(3) of the Statutory Sick Pay Regulations 1982 define the “relevant period” as the period between the last normal pay date to fall before the critical date (the start of the incapacity for work) and the last normal pay day to fall at least 8 weeks earlier than the normal pay day (the day on which the terms of an employees contract require him to be paid or the practice in his employment is for him to be paid if payment is due to him (Regulation 19(2)).[15]The “relevant period” in this appeal is therefore the period between 24 March and 19 May 2006. Submissions[16]Mr Bagley, for Mrs Seaton, submitted that it is a well established principle of contract law that ‘earnings’ accrue at the time when the employment service is provided. As Mrs Seaton worked throughout the “relevant period” she would have accrued earnings for that period even though she received no payment. However, following her successful appeal to the Employment Tribunal Mrs Seaton was awarded the pay to which she was entitled during the relevant period. Therefore, in contract law terms she had earnings during, and was paid in respect of, the “relevant period” and as such is entitled to SSP as her “normal weekly earnings” exceed the lower earnings limit for NIC.[17]The case for HMRC was that as no wages had actually been paid to Mrs Seaton during the “relevant period” her average weekly earnings were £nil and consequently she had no “normal weekly earnings”. This was clearly below the lower earnings limit fro NIC and as this is one of the circumstances specified in schedule 11 a “period of entitlement” could not have arisen and consequently the condition at s. 153(3) cannot be satisfied. Accordingly Mrs Seaton is not entitled to SSP and her appeal should be dismissed.[18]Mr Bagley contended that this rests on a narrow and pedantic, albeit literal, interpretation of the words “paid to him” in s. 163(2) as the word “actually” does not appear in the subsection. He submits that such an interpretation creates an anomalous legal absurdity in that Mrs Seaton’s employer has no liability to pay SSP due to the employer defaulting on the contractual obligation to pay wages. He contends that it is a fundamental principle of English Law that a person should not profit from a deliberate breach of the law which taken to its logical conclusion could allow employers and employees to avoid National Insurance Contributions altogether.[19]As for the interpretation of s. 163(2) Mr Bagley argued that it must be considered in the context of the Act as a whole as the purpose of s. 163(2) is to facilitate the calculation of whether or not “earnings”, within the SSP qualifying period, are above the lower earnings limit and that a method of calculation is not a definition. He further contends that s. 163(2) has a limited effect on the Act as a whole relying on the words “for the purposes of this part of Act …” [i.e. the part relating to SSP] with which the subsection commences.[20]Mr Bagley also referred us to the sections of HMRC’s Statutory Payment Manual dealing with the calculation of average weekly earnings for SSP purposes in the cases of “Mistimed Payments”, (SPM 10605) and a “New Employee” (SPM 10645). Although these do not have the force of law they state that an employee is to be “treated” as having been paid despite not receiving any payment in the case of a new employee and not having being paid on the contractual payday in the case of a mistimed payment pointed out the inconsistency with the approach of HMRC in this case. Unfortunately, in the absence of advice or instructions from HMRC’s Solicitors or Policy Unit, Mrs Storey was unable to enlighten us as to why the Manual, which is there to provide guidance to HMRC staff, appears to contradict the interpretation of s. 163(2) advanced by HMRC in this appeal. Discussion and Conclusion[21]As is clear from the submissions of the parties, the issue before us is the interpretation of s. 163(2) and in particular the construction of the words “… which in the relevant period have been paid to him” in that subsection.[22]When interpreting legislation, as Lawrence Collins LJ said in Harding v HMRC [2008] STC 3499 at [51]:
“The question is always whether the relevant provision of the statute, upon its true construction, applies to the facts as found, and the statutory provision should be given a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction answers to the statutory description: Barclays Mercantile Business Finance Ltd v Mawson [2005] STC 1, at [32], [36]. In particular, if a literal construction would lead to injustice or absurdity, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted: e.g. Luke v IRC [1963] AC 557, at 577; Mangin v. Commissioner of Inland Revenue [1971] AC 739 at 746; Jenks v. Dickinson [1997] STC 853. But there may be cases in which the anomaly cannot be avoided by any legitimate process of interpretation: e.g. HMRC v Bank of Ireland Britain Holding Ltd [2007] EWCA Civ 58, at [44].”
[23]The literal construction of s. 163(2), favoured by HMRC, clearly envisages an actual payment being made during the “relevant period”.[24]However, we consider that, having regard to the circumstances of this appeal, such an interpretation would lead to an injustice given that Mrs Seaton’s situation has arisen as a result of the unlawful action of her employer. As such it is necessary for us to consider whether the language of s. 163(2) admits to an alternative construction which avoids the injustice or absurdity which we may then adopt in preference to the literal interpretation (e.g. Luke v IRC [1963] AC 557, at 577; Mangin v. Commissioner of Inland Revenue [1971] AC 739 at 746; Jenks v. Dickinson [1997] STC 853).[25]Although we are attracted to the interpretation advocated by Mr Bagley that Mrs Seaton was paid in respect of, the “relevant period” we are not able to adopt this construction as we are constrained by the words of s. 163(2) to find that payment is required to be made “in” and not “in respect of” or “for” the “relevant period”  and consider this to be one of those cases to which Lawrence Collins LJ referred in which the anomaly cannot be avoided be any legitimate process of interpretation.[26]If therefore must follow that Mrs Seaton, who has not received any payment in the “relevant period”, has no average weekly earnings and therefore normal weekly earnings of £nil. As such, her normal weekly earnings (£nil) are less than the lower earnings limit (£84) for NIC. As this is one of circumstances specified in paragraph 11, a “period of entitlement” cannot arise and Mrs Seaton therefore does not satisfy the condition in s. 153(2) as the days for which SSP is claimed do not fall within a “period of entitlement”.[27]As she does not satisfy the necessary statutory conditions Mrs Seaton is therefore not entitled to receive SSP.[28]We therefore dismiss the appeal.[29]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.         JOHN BROOKS TRIBUNAL JUDGE RELEASE DATE: 14 June 2010