Reed Employment plc and related appeals

This case was decided in First-tier Tax Tribunal on 6 January. There were essentially two issues covered by the decision.

Reed, which carried on a business as an employment agency, operated on the basis that it engaged workers under an “over-arching” contract, covering workers whilst they worked for a succession of end clients such that each individual assignment was “temporary”. This “temporary” nature allowed Reed to pay travel and subsistence to the workers on a tax and National Insurance free basis. In addition Reed sought to maximise tax and NIC savings by paying such expenses in conjunction with a salary sacrifice arrangement.

HMRC subsequently reviewed the position and issued assessments for PAYE arrears in the region of £158m to Reed. The review was largely initiated following queries raised by workers to HMRC who did not understand the structure that had been put in place.

HMRC’s view, up-held by the Tribunal, was that the workers were akin to workers who were separately engaged for each separate assignment – a deciding factor seems to have been that the workers did not retain any employment related rights between assignments and that the over-arching intention of the contract could not therefore be demonstrated. On the basis that each assignment was separate and to a permanent workplace (as opposed to a temporary one) the travel and subsistence payments were deemed not to be work related and therefore fully subject to income tax and national insurance. This was despite the fact that a dispensation for travel and subsistence was in place - the terms under which the dispensation was issued not matching the circumstances under which the expenses were actually paid. Secondly, the Tribunal did not consider an effective salary sacrifice was in place as the way in which it was structured did not indicate that the worker was actually giving anything up in replacement for the expenses.

What does this mean?

Our experience is that elements of the way Reed arranged its affairs are not altogether untypical. We are aware of other cases recently where the Inspector has raised precisely the issues identified. We believe HMRC are currently focusing on businesses which engage employees to carry out a series of temporary assignments and that in particular they are reviewing:

• contractual arrangements
• the validity of expense claims
• the basis on which any dispensation arrangements are being applied
• the effectiveness of salary sacrifice arrangements.

The risks of a review are therefore, in our view, high. You may have already been contacted by HMRC or be in the midst of a review. Whilst the Reed decision is quite likely to be appealed this will of course be in regard to the specific aspects of this case and it therefore remains important that businesses take steps to ensure compliance in this area.

Please contact Dave Hedges if you would like an initial consultation or would simply like some further information on 01454 777857 or by email dhedges@edge-tax.com