Kate Balmer successful in £158 million Reed Employment Group litigation

The First Tier Tax Tribunal has given judgment in Reed Employment Plc & Others v HMRC, a £158 million case concerning the tax treatment of certain payments, described as “travel allowances”, to Reed’s temporary employees. The long awaited decision follows a month long hearing in March 2011.

In a judgment which is likely to be of interest to tax and employment practitioners alike, the Tribunal considered whether Reed’s various travel allowance schemes were incorporated into its temporary employees’ contracts by way of an effective salary sacrifice.  The Tribunal then went on to consider whether, if there was an effective salary sacrifice, the travel allowances represented the reimbursement of expenses or were simply part of the temps’ salary and, in any case, whether the expenses were deductible. 

Kate Balmer, instructed by HMRC with Malcolm Gammie QC, Adam Tolley and Abra Bompas, successfully argued that Reed’s various travel allowance schemes did not amount to an effective salary sacrifice.  In any event, even if there had been an effective salary sacrifice, any such allowances were ordinary commuting expenses and a personal benefit taxable under Chapter 1 of ITEPA 2003.  In any case, Reed’s temporary employees were not engaged under an overarching, or ‘umbrella’, contract of employment.  Accordingly, in travelling to each assignment, the temporary employees were travelling to a permanent, rather than a temporary, workplace for the purposes of s.338 and 339 of ITEPA.  The expenses were therefore non-deductible.

It remains to be seen whether Reed will continue with its claim for Judicial Review in the Upper Tier Tax Tribunal, currently stayed pending the outcome above.

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