Reed loses travel expenses appeal

Most people in the recruitment sector will be only too aware of the 2011 First Tier Tribunal (FTT) decision in the Reed VAT case.

This is a case that Reed won, but a case that HMRC reacted rather cynically to. Rather than appeal the decision and risk setting a case law precedent in the Upper Tier Tribunal, HMRC chose to accept defeat (First Tier Tribunal decisions do not create legally binding precedent) and to publish guidance to the effect that the case was an isolated and unusual example. As a result, they did not change their generic stance that VAT cannot be limited to only being charged on agency fees.

This is a very disingenuous approach by HMRC both because they refused to fight their case and also because they still maintain that they are in the right. It has also served to cast great uncertainty over the industry until such time as another organisation takes HMRC through the tribunals either to create a precedent or to force them to re-consider their position.

In a separate case, HMRC won a First Tier Tribunal decision against Reed in January 2012 relating to questionable expenses paid to workers without deduction of tax or national insurance. This case was concerned with the payment of Pay As You Earn (PAYE) and National Insurance Contributions (NICs) on the part of the salary that represented reimbursements to temporary workers of expenses for travelling to work. The payments in question relate to the period between 1998 and 2006. Reed’s defense was based around the fact that HMRC allowed the arrangements at the time and are now effectively moving the goalposts.

With a reported £158m of tax at stake, Reed appealed to the Upper Tier Tribunal, and a decision has recently been published upholding the FTT decision that the unpaid tax is now due. At the time, and in their defence, Reed described these payments as ‘salary sacrifice’, whereby the temporary worker effectively gave up some of their salary in return for another benefit. Reed defended their actions by saying that, in their case, temps had agreed to a lower salary in order to qualify for travel and subsistence allowances. HMRC argued that this was not the case because the payments were described as part of the temp workers’ salaries. This HMRC viewpoint was upheld by the Upper Tier Tribunal who found in their favour and ordered Reed to make the payments.

This case is further evidence that HMRC are using every method within their remit to recover unpaid tax and leaving no holds unbarred to collect what they believe they are due. Reed have now disputed the calculation of the alleged tax at stake, and voiced their disquiet at the tribunal finding, noting their intention to seek leave to appeal to a higher court.

As the saying goes…’watch this space’.

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