HMRC defeats Reed in £158m temps’ tax case

Specialist recruiter Reed has spoken of its ‘extreme disappointment’ after losing a £158million battle with the taxman over footing the travel and subsistence bills of temporary job candidates.

Dished out by the staffing company’s agents to 500,000 temporary workers between 1998 and 2006, the daily payments covered lunch – up to £6, and commuting – up to £11.45.

They were meant to be part of a salary sacrifice arrangement – where temps forego some of their salary for such perks, but it has emerged that no real agreement was in place for the six 12-month periods to 2006.

This is because HM Revenue & Customs has successfully argued that the employed temps were engaged under a series of job-by-job contracts and not, as Reed says, under a contract that continued (as an employment contract) following the end of an assignment.

This judgement, issued last week by a tax tribunal, implies that in the absence of any real agreement with the taxman, Reed effectively manipulated salary figures on payslips after the event.

“In other words,” the tribunal judges said. “The salary was paid in full, even if there was a later manipulation. Accordingly, in our judgment, no part of the salary itself could be said to have been sacrificed.”

And although there are signs that Reed’s dispensation was initially approved – one tax official admitted in late 2005 that HMRC may have ‘cocked-up’, the Revenue can now claim the backdated tax.  

Problematically though, Reed is unable to reclaim the income tax and National Insurance from the temps who, between 2001 and 2006, ducked a total of £158million, the tribunal heard.

This figure is disputed by the company (and its owner Reed Global), which plans to appeal the ruling and instigate a judicial review over its treatment in the case by HMRC. In a statement to CUK, the group said it was “extremely disappointed” by the judgement.

It added: "We would like to clarify that this is a dispute between HMRC and Reed, and this case does not have an impact on temporary workers past or present. 

"There has also been no decision taken on the size of the claim, and Reed disputes the figure proposed by HMRC. We will be appealing."

However, the judges sounded emphatic: “We are satisfied that the allowances, although purportedly covered by a dispensation, were Chapter 1 [of the Income Tax Earnings and Pensions Act 2003] earnings.

“Even if that conclusion is wrong,” they added, “they were Chapter 3 [of ITEPA] earnings which did not attract relief because they were paid to reimburse ordinary commuting expenses because the employed temps had series of job-by-job contracts, and not continuing contracts of employment.

“[We are satisfied then] that Reed should have accounted for tax and NICs on the allowances throughout the relevant period and that the [HMRC/tax] assessments and determinations were, in principle, correctly made.”

Editor's Note: Related Reading -

HMRC closes in on Reed's £158m temps' tax bill

What Reed's expenses defeat means for temps

Printer Friendly, PDF & Email

Sign up to our Weekly Newsletter

Keep up to date with everything in the world of contracting.


Contractor's Question

If you have a question about contracting please feel free to ask us!

Ask a question