The Court of Appeal have today decided the Reed Group salary sacrifice appeal in HMRC’s favour, ex tempore, with reasons to follow.
Subject to a further appeal, this means that a number of Reed group companies face a liability of up to £158m in unpaid tax and national insurance contributions.
The case concerns a travel and subsistence scheme operated by Reed, where they claimed they operated a salary sacrifice scheme for employed temporary staff.
The earlier Upper Tribunal hearing dismissed Reed’s appeals, upholding the decision of the First-tier Tribunal.
Reed took the view that they had implemented a salary sacrifice scheme which, coupled with the PAYE dispensations they had obtained to cover the allowances concerned, meant that the allowances did not come within PAYE, and were also exempt from NICs.
The Upper Tribunal saw no grounds for interfering with the findings of the First-tier Tribunal.
The employed temps were receiving a salary, not an expense allowance, and were engaged under a series of job-by-job contracts, not under a continuing overarching employment contract.
Thus the ‘salary sacrifice’ arrangement was ineffective, and PAYE and NICs were due on travel and subsistence payments made under the scheme.
The Upper Tribunal concluded there was ample evidence to support the First-tier Tribunal’s finding that, although the statement of facts put to HMRC before the dispensations were granted reflected what the taxpayer believed to be correct at the time, this did not give the full picture.
As the Upper Tribunal put it, an applicant for a dispensation bears the burden of conveying the relevant facts to HMRC and generally bears the consequences of any error he or she makes.
The Court of Appeal seems to have supported the Upper Tribunal’s view. We shall see their reasoning in due course.
The results of this case are likely to prove very costly for Reed Employment and demonstrates that HMRC are continuously on the lookout to ensure the tax rules are being followed.