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.
The upper tribunal ruled that the expense payments were part of the employed temps’ ordinary salary payments and therefore PAYE and NICs were due on them.
It also found that, when HMRC originally considered Reed’s travel expenses scheme, which was devised by accounting firm Robson Rhodes, it had not been given a full picture by the company of how they worked.
Ruth Owen, director general personal tax, HMRC, said: “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.”
But this is unlikely to be the end of the matter. In a statement to AccountingWEB, Reed said that it would try to challenge the tribunal decision. It also said that it disputed the amount of tax HMRC said it owed.
“We are disappointed with the decision of the upper tribunal and we will be seeking leave to appeal,” the company said in a statement.
“This is a dispute between Reed and HMRC concerning arrangements that were in place over 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.”