Thu, 26 Jan 2012

Employers urged to check robustness of salary sacrifice following £158m Reed case

Employers using salary sacrifice schemes are being urged to check their robustness after Reed lost a £158m tax case against HMRC.

The recruitment agency, which is appealing the decision, paid half a million temp staff up to £6 a day for subsistence and up to £11.45 a day for commuting between 1998 and 2006 as part of a complex salary sacrifice scheme.

However, a First Tier Tribunal ruling on payments made between January 2001 and April 2006 said that despite the employee giving up a portion of salary Reed did not provide reciprocity and retained a significant portion from the arrangement, so it was not an effective salary sacrifice.

It also found that each worker’s assignment was a separate contract of employment and hence a separate contract of service for tax purposes, so that the travel was to a permanent workplace, was ordinary commuting and was not tax deductible.

David Allen, CEO of the recruitment consultancy, Legitas Group, said that the case demonstrated that employers, who employed temporary workers, needed to think carefully before applying for a dispensation in relation to expenses incurred.

Timely reminder

And tax experts say the case acted as a timely reminder for employers to ensure the compliance of their salary sacrifice schemes.

“We see a lot of people buying arrangements from non-tax people like HR consulting firms and flex benefit companies and in many cases that is how a lot of these problems occur, because effectively employers buy a product in and do not ensure the contracts are correctly put in place,” said Alastair Kendrick, tax director at MacIntyre Hudson.

“If you have salary sacrifice in place make sure that it is robust.”

See also:

• How to deal with any further strikes
• Royal Mail pay ‘disaster’ could lead to tribunals and raises questions over in-house management of temp workers
• Fraudster who filed no tax, VAT or PAYE returns for seven years jailed for 18 months