Reed Group loses £158m salary sacrifice appeal

Reed Group has lost its case in the Upper Tax Tribunal against HM Revenue and Customs (HMRC) concerning the tax treatment of travel and subsistence expenses to staff.

Legal requirements for workplaces

A number of Reed Group organisations now face a liability to HMRC worth up to £158 million in unpaid tax and national insurance contributions (NICs).

The case first appeared in the First Tier Tribunal in 2012. It concerns payments made between January 2001 and April 2006 to around 500,000 temporary staff by way of a salary sacrifice arrangement.

The original understanding was encapsulated in a dispensation so that payments were part of employees’ gross pay.

HMRC contended that if a salary sacrifice arrangement is to be effective for tax purposes, an employee must actually agree to work in future for the reduced salary, and the employer must provide some other benefit in a form that is not readily convertible into money.

The tribunal agreed with HMRC, however, that the payments should have been subject to pay-as-you-earn (PAYE), with income tax deducted and accounted for, and both the employer’s and employees’ NICs accounted for.

Reed Group appealed the decision in 2013 but the Upper Tax Tribunal also agreed with HMRC.

The tribunal said that each assignment was a separate employment, and that there was not sufficient mutuality of obligation between assignments to make the whole relationship continue over from assignment to assignment (such that each assignment was at a temporary workplace justifying tax-free travel expenses).

Reed has three months to seek permission from the Upper Tribunal for leave to appeal to the Court of Appeal.

A spokesperson from Reed Group said: “We are disappointed with the decision of the Upper Tribunal and we will be seeking leave to appeal.

“This is a dispute between Reed and HMRC concerning arrangements that were in place more than eight years ago. It does not have an impact on temporary employees past or present. Even if some tax is eventually due, the amount is still in dispute.”

Ruth Owen, director general, personal tax at HMRC, added: “This case shows that HMRC is determined to ensure everyone pays their fair share of tax to fund vital public services.

“The department has used every method at its disposal to secure the tax due, and its position on the case has now been backed by two courts.” 

Susan Ball, partner at tax and advisory firm Crowe Clark Whitehall, said: The Reed case will have an impact on many employers using salary sacrifice arrangements or with dispensations.

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“I advise any employer with these arrangements in place to carefully review their arrangements. This case demonstrates that valid documentation and full disclosure is key.”

Alastair Kendrick, tax director at MHA MacIntyre Hudson, added: “The results of this case are going to prove, most likely, very costly for Reed Employment and shows that HMRC are on the lookout to ensure the tax riles are being followed so people are not taking a potential advantage.”