Reed introduced a travel subsistence plan in 1998, which was operated until 2006.  Reed claimed that the plan reduced the taxable salary of temporary employees and allowed them to pay tax and national Insurance (NI) free allowances for travel and meals.  

However, last week (5 August) the Court of Appeal upheld the decisions made in favour of HMRC in the First Tier Tribunal and Upper Tribunal in April 2014.  It found that there had been no reduction in salary and that payments made to the temporary employees should be subject to tax and NI in full. The Court dismissed Reed’s appeal and awarded HMRC costs.

Ruth Owen, director general of personal tax, said: “This shows that we were right to challenge the complex arrangements that Reed used to try to reduce their Income Tax and National Insurance liabilities, and that we won’t hesitate to litigate cases if necessary to secure the tax due.”

Commenting on the case, Mike Moore, tax director at Deloitte, said: “The case demonstrates how difficult it has become to defend arrangements that reduce salary or cash allowances for employees which are then replaced by a benefit or another form of payment.  This would apply to salary sacrifice for car schemes and arrangements that reduce car allowances in exchange for tax and NI free mileage payments “AMAP”.  

“The Reed decision highlighted that this is particularly the case where none or very little of the savings are shared with employees.  Clear contractual documents and employee communications are key in ensuring that robust plans are compliant for tax purposes.”

He added: “Businesses should review how they currently operate their salary sacrifice and car allowance schemes.”