The Court of Appeal has given its decision in favour of HMRC in the case of Reed Employment plc, allowing HMRC to claim £158m of unpaid PAYE and NIC’s. The case covers whether payments made to employees under arrangements relating to travel expenses were taxable earnings and subject to PAYE and NIC.
Reed supplied temporary workers to customers to work at their sites. The temporary workers were engaged as employees and arrangements were set up so that the taxable salaries were reduced and employees received tax-free expenses for travel and subsistence.
The original Tribunal concluded that the salary sacrifice was not effective because in reality no salary was actually sacrificed and no benefit was actually received by the worker (this was all a result of a complex scheme used by Reed to deliver the ultimate benefit to themselves). Additionally the Tribunal found that that in reality the temps worked at a series of job-by-job locations and not under an “overarching contract” of employment with the result that the travel expenses were to a permanent workplace and were therefore not deductible and so were in fact part of the worker’s wages which nullified the effect of prior dispensations granted by HMRC on the arrangements.
Compliance never comes cheap, but this long-running case is a stark reminder of how costly non-compliance can be.