Reed Employment Plc and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 January 2012 |
| Neutral Citation | [2012] UKFTT 28 (TC) |
| Date | 06 January 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 28 (TC)
Judge Colin Bishopp (Chairman), Judge John Avery Jones CBE
Mr Andrew Clarke QC, Mr David Ewart QC and Mr Richard Vallatt, counsel, instructed by Slaughter and May, for the Appellants
Mr Malcolm Gammie QC, Mr Adam Tolley, Miss Abra Bompas and Miss Kate Balmer, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Income tax and National Insurance contributions - dispensations within ITEPA Income Tax (Earnings and Pensions) Act 2003 section 65s. 65 - allowances for travel and subsistence costs - character of allowances - found to be chapter 1 earnings - whether recipients had permanent or temporary workplaces - permanent - travel costs ordinary commuting expenses and not deductible - whether allowances within dispensations - no - whether dispensations could lawfully be granted - no - appeal substantially dismissed
CONTENTS |
Glossary |
Introduction |
Background |
The appeals |
The facts |
Reed's business |
The 1998 legislative changes |
Reed and Robson Rhodes |
The first dispensation |
The second dispensation |
The third dispensation |
The fourth dispensation |
The fifth dispensation |
The mechanics of the RTA and RTB schemes |
The revocation of the fifth dispensation |
The replacement scheme |
Reed's contracts with its employed temps |
HMRC's understanding of the operation of the schemes |
The relevant legislation |
The issues |
Issue 1: did the employed temps make an effective salary sacrifice? |
Reed's submissions |
HMRC's submissions |
Discussion |
Issue 2: were the disputed allowances within Chapter 1 or Chapter 3? |
Reed's submissions |
HMRC's submissions |
Discussion |
Issue 3: were the workplaces temporary or permanent? |
Reed's submissions |
HMRC's submissions |
Discussion |
Issue 4: could the inspector lawfully grant the dispensations? |
Discussion |
Issue 5: did the dispensations cover the allowances? |
Issue 6: what is the effect of a dispensation? |
Issue 7: Reed's legitimate expectation |
Issue 8: was reed obliged to make paye deductions in the relevant period? |
Issue 9: is the outcome for NICs the same as for tax? |
Conclusions |
DRAMATIS PERSON |
|
Austin, Jacqueline |
The HMRC officer who led the Employer Compliance Review of Reed from 2004 onwards. |
Baddeley, Simon |
Senior Regional Director of Reed Specialist Limited, a Reed Group company, though not one of the appellants. |
Baillie, John |
The Contributions Agency inspector who led the Contributions Agency review of Reed from 1998 to 2001. |
Beal, Derek |
An executive director of all the appellants (save for Reed Health) as well as of all other Reed companies. He became a non-executive director of Reed Health in November 2004. |
Brook, David |
The HM Inspector of Taxes who granted the Fifth Dispensation. |
Chapman, Sylvia |
An HMRC officer with particular expertise in the employment status of workers. |
Downes, Tim |
The HM Inspector of Taxes who negotiated and granted the First Dispensation in 1998. |
Hird, Douglas |
An HMRC officer part of whose role was to deal with PAYE enquiries. |
Kirkham, Diane |
An HMRC officer who was involved in the negotiation and grant of all of the dispensations. |
Ollerenshaw, Susan |
Joined Robson Rhodes as an employment tax adviser in January 1999. After Mr Rayer left Robson Rhodes, Miss Ollerenshaw was Reed's main point of contact in relation to the Dispensations, RTA and RTB. |
Rayer, John |
A tax partner at Robson Rhodes. He was Reed's main point of contact with Robson Rhodes from 1992 until 2001. |
Read, Nick |
The HM Inspector of Taxes who granted the Second to Fourth Dispensations and was involved in the grant of the Fifth Dispensation. |
Robson Rhodes |
Reed's external accountants throughout the relevant period (usually abbreviated within this decision to RR. The firm later became RSM Robson Rhodes and then RSM Robson Rhodes LLP). |
Sims, Pat |
An employee of RR who assisted Mr Rayer and Miss Ollerenshaw. |
GLOSSARY |
|
Agency worker |
A self-employed worker engaged by an employment business under a contract for services to work on assignment for the employment business's clients on a temporary basis: see para 3. |
Allowances |
Reed Travel Allowance and Reed Travel Benefit. The sums for the time being set out in the current dispensation. |
Dispensations |
First Dispensation granted on 30 November 1998; |
Second Dispensation granted on 9 January 2001; |
|
Third Dispensation granted on 7 February 2002; |
|
Fourth Dispensation granted on 7 March 2003; and |
|
Fifth Dispensation granted on 3 February 2004. |
|
Employed temp |
An employee of Reed placed on assignment with a client: see para 5. |
Employment business |
The activity of Reed with which we are concerned: see para 2. |
HMRC |
Used as shorthand term to include not only Her Majesty's Commissioners for Revenue and Customs but also their predecessor bodies, the Inland Revenue, HM Customs & Excise and the Contributions Agency. |
ITEPA |
|
NICs |
National Insurance contributions. |
PRP |
Profit-related pay: see para 29. |
Reed |
The appellants collectively. |
Reed Health |
Reed Health Limited, the third appellant, to which slightly different arrangements applied for part of the relevant period. |
Relevant period |
6 January 2001 to 5 April 2006. |
RR |
Robson Rhodes. |
RTA |
Reed Travel Allowance, the scheme introduced in 1998. |
RTB |
Reed Travel Benefit, the amended scheme which succeeded RTA in 2002. |
Schemes |
The RTA and RTB schemes. |
SSCR |
|
Temporary employee |
Umbrella term to include agency workers and employed temps: see para 3. |
Travel-to-work payment |
The supplement to temporary employees' pay Reed paid (subject to the deduction of tax and NICs) while the RTA scheme was in operation. |
1.The appellants are all members of the Reed group of companies, carrying on business as what are generally, though not altogether accurately, known as employment agencies. For part of the period with which we are concerned (6 January 2001 to 5 April 2006, the "relevant period") one of the appellants, Reed Health Limited ("Reed Health"), was not a member of the group, but the various arrangements we shall describe were adopted by it as well as the other companies in the group, and with limited exceptions we do not need to treat it or any of the 10 other Reed companies separately. Unless there is a reason to distinguish between one of the appellants and the remainder, we shall use the word "Reed" as a term to encompass all the appellants as a group, as well as each individual company within that group.
2.Throughout the relevant period Reed acted as both an employment agency, properly so called, and as an employment business. It is common ground that the legislation regulating employment bureaux (a portmanteau term to cover both) draws a distinction between "employment agencies", which place permanent staff, that is workers who become employees of the agency's client, and thereafter have no continuing relationship with the agency, and "employment businesses", which provide "temporary employees", that is workers who undertake work for the agency's clients, usually but not always for a fairly short period, but who, despite the use of the term "temporary employees", do not become employees of the client. It is also common ground that employment agencies and employment businesses may, depending on the contractual arrangements into which they enter, act either as principals or as agents. We are concerned in this appeal only with Reed's activities as an employment business.
3.A temporary employee may be either a self-employed person or an employee of the employment business. Such self-employed persons are generally referred to as "agency workers", the term we shall use in this decision. Reed acted as agent for its agency workers, and as principal for its employed temps (for the meaning of this expression see para 5 below). Although they do not have contracts of service, agency workers are nevertheless treated for tax, and in particular PAYE, purposes as if they were employees of the agency through which they obtain engagements. This treatment is dictated by Income Tax (Earnings and Pensions) Act 2003 section 44s 44 of the Income Tax (Earnings and Pensions) Act 2003 ("ITEPA"), re-enacting without significant amendment earlier provisions of the Income and Corporation Taxes Act 1988 ("ICTA") to the same effect. We add for completeness that it seems some workers offered their services to Reed through the medium of a limited company, but we are not concerned with such workers in this appeal and leave them out of account in what follows.
4.As the parties agree that there is no material difference between the ITEPA provisions and those which preceded them, in this and in other contexts, we shall refer only to ITEPA in this decision, unless there is a particular reason to do otherwise. There are similar provisions in respect of National Insurance contributions ("NICs") in the Social Security (Contributions) Regulations 2001 (SI 2001/1004) ("the SSCR"), which replaced their predecessors, the Social Security (Contributions) Regulations 1979 (SI 1979/591) from 6 April 2001. Again, as the SSCR merely repeat the earlier provisions without amending them we shall refer only to those regulations, unless it is necessary to do otherwise.
5.Since 1995, the majority of Reed's temporary employees have been employed by Reed and, apart from Reed Health, Reed has not engaged agency workers at all since 2001. Reed Health ceased to engage agency workers in 2004. Those workers who were Reed's employees, both before and after 2001, are referred to in this decision as "employed temps". The original impetus for Reed's employing its temporary employees was that employees could, while agency workers could not, benefit from the tax provisions relating to...
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