It's all sorted. The Boss came in to see us today and after all of this, they have totally backed down and agreed with everything we have put to them. I did print out the Act and highlighted all the salient points, but it wasn't necessary as they didn't argue.
He has even promised to sort out the snafu that ended up with one of our chaps getting a written warning.
So to make it all clear. As we all know, you only need to give 12 hours notification if you are going to IOM, CI, Eire or Northern Ireland. You do not need to give notice if you are going to any other islands. You certainly won't be needing to give notice if you are flying within the UK!
A victory for common sense, but what a waste of effort. Thanks for all the advice.