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Wrong application of statutory maternity pay

The taxpayer paid statutory maternity pay (SMP) to an employee and offset the amount against its class 1 National Insurance liability. HMRC said the employee had not been entitled to SMP because she had not met the qualifying threshold set by the lower earnings limit for SMP. There had therefore been no entitlement to an offset and an underpayment had arisen. HMRC also imposed a penalty on the ground the company had acted carelessly although it later agreed to suspend it.

The director of the company appealed. He said HMRC’s decision to collect the underpaid National Insurance was unreasonable and as a public body it had failed to exercise discretion. Further the company dealt with its tax affairs honestly and kept its records in good order. It employed an adviser to deal with its tax and if the adviser...