Next faces HMRC probe over incorrect staff payments

Fashion retailer Next is facing an investigation by the UK’s tax authority after the botched rollout of a new payroll system led to thousands of employees receiving incorrect salary payments.

The company, which this week lifted its full-year profit forecast after stronger than expected sales, replaced its in-house payroll software with a system from US group Oracle at the start of the year.

The change resulted in an immediate increase in both underpayments and overpayments, especially to shop floor and warehouse employees who are paid weekly rather than monthly.

The payroll errors could have resulted in some staff being paid less than the UK’s statutory minimum wage, which is £9.50 an hour for those aged 23 and over at a time when inflation is running at its highest level in forty years.

Next confirmed that an investigation by HM Revenue & Customs, first reported by the Sunday Times newspaper, is under way and that it has been deemed a “medium-risk” corporate taxpayer rather than a low-risk one.

The tax authority can impose penalties on a business of up to 200 per cent of the arrears owed to workers who were paid below the minimum wage. HMRC declined to comment.

Several other retailers, including John Lewis, Iceland and Argos, have been probed over breaches of minimum wage laws, many of which were inadvertent.

Next said that it had introduced a separate system to cross-check Oracle’s output and reduce incorrect payments, and that in the latest payroll round the number of errors was 219 out of a workforce of 43,000.

The retailer acknowledged that the errors had caused financial difficulties and distress to those who were underpaid and those whose salaries were topped up by state benefits.

The Sunday Times cited Next employees who said they were unable to afford bus fares to get to work, had to borrow money from relatives to pay bills, or lost benefits after being overpaid.

“We acknowledge the frustration many colleagues have felt and reiterate our sincere apologies,” the company said in a statement.

The failings are a severe embarrassment for a retailer generally regarded as well run and one that has successfully navigated the pandemic and the longer-term shift from stores to ecommerce.

They may also be a symptom of its relative insularity. According to one former employee, Next tends to attract managers in the early stages of their careers who often end up staying there for decades.

It has also tended to avoid using third-party software. “Over the years we have written almost all of our major operational systems applications in-house,” the company said last year.

“It would be as unthinkable for us to contract out our core operational systems as it would be to contract out the designing of our clothing ranges,” Next added.