Salary sacrifice travel expenses appeal dismissed

28 August 2015

The case concerned travel and subsistence payments Reed made to 500,000 agency staff between 2001 and 2006, through a salary sacrifice scheme that the tribunal ruled was not valid. In 2012 HMRC were pursuing £158 million in unpaid taxes and interest – although Reed disputed this figure and appealed the decision.

Reed claimed that their temps were employed on a single contract, covering them to work at multiple client locations, and qualifying them for travel contributions that were not taxable. But HMRC argued that each assignment constituted a separate workplace, and temps would therefore incur “ordinary commuting” costs that were not tax-deductible expenses. It also maintained that a salary sacrifice scheme was not “an effective one” if an employer reduced salaries but paid the remainder in another form, such as ineligible expenses.

The first tier tax tribunal subsequently ruled in HMRC’s favour. It agreed that each assignment represented a separate contract of employment, and that the salary sacrifice scheme was not a valid one as workers could opt out. The tribunal also noted that many Reed temps would have been unaware they were giving up part of their salary through the arrangement, because of the confusing description in their staff handbooks.

Reed appealed against the tribunal’s ruling and the appeal was dismissed following a hearing in July 2015.

CIPP comment

This case should act as a reminder to those employers who have entered into salary sacrifice arrangements with their employees, of the importance of amending contracts of employment to accurately reflect any new agreements. And importantly to avoid any form of litigation, employers should ask HMRC to confirm the tax and NICs implications, after the salary sacrifice arrangement has been put in place.