HMRC issues a further update on sleep-in self-reviews

On Friday 17 August 2018 HM Revenue and Customs (HMRC) issued a further update to social care providers in the Social Care Compliance Scheme (SCCS) confirming that the SCCS will continue to operate, and participating employers must complete and submit their declarations to HMRC no later than 12 months of them joining the SCCS or by 31 December 2018.

Background to the SCCS

As social care providers will be aware, on 1 November 2017, the Government announced that it was launching the SCCS for social care providers that may have incorrectly paid workers below National Minimum Wage (NMW) for sleep-in shifts.

By entering the SCCS, social care employers were agreeing to:

• identify all the current and former workers who have carried out sleep-in shifts;
• review their historical sleep-in pay arrangements;
• assess whether time spent on sleep-ins was working time for NMW purposes (in accordance with the existing rules); and
• determine whether workers have been paid below NMW.

Additionally, under the SCCS, providers are also expected to review their pay records more generally, and if identified, set out any other areas of NMW underpayments to their workforce and pay arrears due.

July 2018 Announcement

Following the Court of Appeal judgment in Royal Mencap Society v Tomlinson-Blake, on or around 24 July 2018, HMRC wrote to employers in the SCCS confirming it was considering the implications of the decision and advised that, in the meantime, the following options were available to those in the SCCS:

1. Suspend the self-review pending further advice from HMRC; or
2. Continue the self-review taking account of the Court of Appeal Judgement and considering all other National Minimum Wage risks.

17 August 2018 Announcement

Finally, and to everyone’s surprise, on 17 August 2018 HMRC confirmed that it decided that it is appropriate to continue to operate the SCCS that all original timeframes and requirements of the scheme remain in place namely:

• employers must complete their self-review and submit their declarations to HMRC by no later than 12 months of their application to the SCCS or 31 December 2018, whichever is sooner;
• all non-sleeping-time arrears must be paid before employers return their declaration;
• any sleeping time arrears must be paid to workers within three months of returning the declaration or by 31 March 2019, whichever is sooner.

Worryingly, the announcement from HMRC gives no information on what approach HMRC will take to assessing whether time spent on sleep-ins was working time for NMW purposes. This is particularly concerning as the announcement does state that ‘all original requirements of the scheme remain in place’. Clearly, one of the original requirements was that all sleep-in time should be counted for NMW purposes.

We do not consider that HMRC will, in light of the Court of Appeal decision in Mencap, continue the original approach under the SCCS that all sleep-in time should count for NMW purposes. It is clear from the July announcement that HMRC expects providers who continue their self-review to take account of the Court of Appeal Judgement, however, HMRC does not make it clear whether all sleep-in time can be ignored as non-working time. The message from HMRC is confusing, and it appears that its approach will depend on what the Department for Business, Energy & Industrial Strategy (BEIS) say in their guidance on Calculating the Minimum Wage. HMRC has indicated that employers in the SCCS will be issued with an updated SCCS Employer guide once the revised Calculating the Minimum Wage is available.

Our comments

We consider that providers now have the following options:

1. Leave the SCCS.
2. Remain in the SCCS and submit a nil-declaration for sleep-ins. 
3. Remain in the scheme for now and await the publication of the BEIS guidance on calculating NMW.

HMRC has confirmed that failure to adhere to the terms or timeframes of the SCCS, or withdrawing from the SCCS, may result in HMRC opening an investigation into your pay practices. For some providers, however, exiting the SCCS may be the best option, and could potentially remove or significantly reduce any historical liability even if the appeal to the Supreme Court is successful.

The disadvantage of a nil declaration is there is no timescale for HMRC to accept or reject that declaration, so if there is a Supreme Court appeal, a provider could be left hanging by HMRC as to whether the declaration has been accepted or not until the Supreme Court judgment is handed down (probably no earlier than summer 2019). This could, therefore, leave those in the SCCS in the continuing state of uncertainty. 

The other disadvantage of submitting a declaration is that it will also have to cover non-sleep-in-related NMW issues, and a provider who has not reviewed their records more generally may feel uncomfortable about signing a declaration.   However, for providers who know they have some exposure to other issues, it may be advantageous to utilise the scheme and make an appropriate declaration.

Remaining in the SCCS and awaiting a further announcement is a possibility, but the time is now running out for undertaking any self-review with a deadline of 31 December 2018 fast approaching.

For more information

For more information on NMW compliance, please get in touch with your usual contact in our employment team. Alternatively, speak to Anna Dabek or Matthew Wort.