Reed, one of the UK’s largest employment agencies, faces a potential tax bill of £158m after it lost an upper tier tribunal decision in a long and complex dispute over whether allowances to temporary workers should be taxed as earnings.
The upper tribunal backed a judgement in 2012 by the first-tier tribunal, which said that Reed should have paid Pay As You Earn (PAYE) and National Insurance Contributions (NICs) on the salaries of temps employed between 1998 and 2006.
During this time, Reed described part of the salary earned by its employed temps (who were employed by Reed but worked for its clients) as expenses for travel to work that were paid without making deductions for PAYE and NICs.
Reed had argued that because HMRC originally allowed these arrangements it could not now be expected to pay any PAYE and NICs due on the expense reimbursements.
It also argued that its payment of temps’ travel and food expenses was part of a “salary sacrifice” scheme. The temps agreed to a lower salary in exchange for travel and subsidence allowances - so the allowances should not be taxed as earnings.
HMRC argued that it wasn’t a salary sacrifice scheme because the payment of expenses were part of the workers’ salary...