Revenue and Customs Commissioners v Pertemps Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 August 2019 |
| Neutral Citation | [2019] UKUT 234 (TCC) |
| Date | 07 August 2019 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2019] UKUT 234 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Nugee, Judge Greg Sinfield
James Puzey, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Timothy Brennan QC, instructed by Anthony Collins Solicitors LLP, appeared for the respondent
Value added tax – Salary sacrifice scheme – Whether a supply of services – Whether an economic activity – No – Appeal dismissed.
The UT dismissed an appeal by HMRC against the FTT's decision that a charge made by Pertemps to employees who participated in a salary sacrifice scheme was not subject to VAT. The UT disagreed with part of the FTT's decision. The FTT concluded that the charge made by Pertemps was payment for a supply of services but that Pertemps was not engaged in economic activity and therefore it was not subject to VAT. The UT decided the FTT had erred when it concluded Pertemps made a supply of services, but agreed Pertemps was not carrying out an economic activity.
This appeal concerned the VAT treatment of an arrangement known as the Mobile Advantage Plan (MAP)
Pertemps offered employees working on temporary assignments the option of being paid a salary inclusive of travel and subsistence expenses or participating in the MAP and receiving travel and subsistence expenses and a reduced salary. The salary was reduced by an amount equal to the expenses paid and a further fixed amount of either 50p or £1 (the MAP adjustment). Even after payment of the MAP adjustment the employees were better off since the expenses were reimbursed free of tax and national insurance contributions.
HMRC argued that the MAP adjustment was subject to VAT being consideration paid by the employees for a supply of services by Pertemps.
The FTT found there was a supply of services by Pertemps to its participating employees, but the operation of the MAP was not an economic activity for VAT purposes. Furthermore, if it was wrong and there was a supply for VAT purposes that supply would have been exempt from VAT.
There were 3 issues for decision in the appeal:
- was there a supply of services for consideration for the purposes of art. 2;
- whether that supply constituted an economic activity under art. 9 and
- would any supply for VAT purposes be exempt from VAT.
The UT, following a detailed consideration of the relevant caselaw including Wakefield College v R & C Commrs [2018] BVC 22, EC Commission v Finland (Case C-246/08) [2010] BVC 1,062 and Gemeente Borsele v Staatssecretaris van Financiën; Staatssecretaris van Financiën v Gemeente Borsele (Case C-520/14) [2016] BVC 18 found there was no supply of services by Pertemps. In addition, differentiating Astra Zeneca UK Ltd v R & C Commrs (Case C-40/09) [2011] BVC 101, there was no economic activity by Pertemps. Pertemps were merely acting in their capacity as employer pursuant to the employee/employer relationship.
On the question of exemption, the UT disagreed with the FTT and indicated, had they been required to do so, they would have found in favour of HMRC in this respect.
Salary sacrifice schemes have been a regular source of contention and this case will no doubt be useful in relation to these. The detailed guidance provided on the correct approach in relation to whether there is a supply for VAT purposes will have much wider application and is a welcome addition to existing caselaw.
[1] This appeal concerns the VAT treatment of an arrangement, known as the Mobile Advantage Plan (“MAP”), between the Respondent, Pertemps Limited (“Pertemps”), and some of its employees.
[2] As its name suggests, Pertemps provides permanent and temporary workers to clients. In this appeal, we are only concerned with those employees who were working on temporary assignments for clients of Pertemps. The employees were offered the option of being paid a salary, out of which they would have to meet any travel and subsistence expenses, or participating in the MAP under which they would be paid their travel and subsistence expenses but receive a reduced salary. The amount of the reduction was equal to the amount of the expenses payment plus a fixed amount. The fixed amount (“the MAP adjustment”) was, at different times, 50p or £1 per shift.
[3] The advantage conferred by using the MAP was that the expenses were reimbursed free of tax and national insurance contributions (“NICs”). Thus, even after the payment of the MAP adjustment, the employees were better off. Pertemps also benefited as it did not pay primary Class 1 NICs in relation to those employees using the MAP.
[4] The Appellants (“HMRC”) took the view that the MAP involved a taxable supply of services by Pertemps to its participating employees. HMRC considered that the services were supplied in return for the MAP adjustment of £1 or 50p and that Pertemps was liable to account for VAT on those amounts. Accordingly, HMRC notified Pertemps of their decision in a letter dated 17 April 2013 and assessed Pertemps for VAT of £715,918 in two assessments covering periods 07/09 to 07/14. There are further assessments standing behind these appeals.
[5] Pertemps appealed to the First-tier Tribunal (“FTT”) against the decision and assessments. In a decision released on 6 July 2018, [2018] TC 06583, the FTT concluded that Pertemps did supply services to the employees but the supply was not within the scope of VAT because the operation of the MAP was not an economic activity for VAT purposes and allowed the appeal. The FTT also held that, if there had been a supply, it would have been exempt.
[6] HMRC now appeal, with permission of the FTT, against the FTT's decision that that the MAP was not an economic activity and, in the alternative, that any supply was exempt.
[7] For the reasons set out below, we have decided that the FTT erred in law when it concluded that Pertemps made a supply of services to the employees who participated in the MAP but that the FTT was correct when it concluded that Pertemps was not carrying on any economic activity when it provided the MAP to employees. Accordingly, HMRC's appeal is dismissed.
[8] The FTT set out its detailed findings of fact at [11] to [83] of the decision and those findings are not in dispute. In its decision, the FTT refers to the employees who were eligible to benefit from the MAP as “flexible employees”. For the purposes of this decision, the key findings of fact were as set out below.
[9] The FTT summarised the MAP as follows at [18]–[20]:
[18] Flexible employees were offered the opportunity to participate in MAP. Under MAP, a flexible employee agreed to a reduction in the wage which he or she would earn. In return, Pertemps agreed to make a payment to the employee of an amount of travel and subsistence expenses. The amount of the reduction applied to the employee's wages was equal to the amount of the expenses payment plus a fixed amount.
[19] The fixed amount was at different times in the periods in question 50p or £1 per shift. The parties referred to the fixed amount as the “MAP adjustment”. I have used the same term in this decision notice.
[20] Although the total amount of the payments (before tax and national insurance contributions) to which an employee was entitled from Pertemps under MAP was less than that to which he or she would have been entitled if he or she had not elected to participate in MAP (by the amount of 50p or £1 per shift), the operation of MAP did provide some benefits to flexible employees. These are described in more detail below, but, in summary, the employee obtained a cash flow benefit because the payment of the expenses was not subject to deduction of income tax or national insurance contributions.
[10] At [23]–[35], the FTT set out the treatment of the payment of expenses for income tax and NICs. In summary, a payment of expenses made by an employer to an employee is usually treated as earnings and taxed as income. However, the employee may claim a deduction for those expenses if relief is available under specific provisions listed in section 72(3) of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). For example, expenses incurred “wholly, exclusively and necessarily” in the performance of the duties of the employment and travel expenses “attributable to the employee”s necessary attendance at any place of performance of' those duties are deductible from taxable income. There are similar reliefs from the obligations to account for primary and secondary Class 1 NICs.
[11] Under section 65 ITEPA, an officer of HMRC must give a dispensation to an employer if the officer is satisfied that no additional tax is payable on the payments or benefits specified in the dispensation by virtue of, among other provisions, section 72 ITEPA. The FTT explained the effect of the dispensation in [30]:
[30] When a dispensation is given, the payments or benefits covered by the dispensation are taken out of the charge to tax. In the context of a payment of expenses by an employer to an employee, the employee does not have to include the expenses within his or her taxable income for income tax purposes and then claim the relevant deduction (for example, under s336 or s338 ITEPA); the employer is not required to deduct or account for PAYE income tax and national insurance contributions in respect of the payment; and the employer does not have to include the payment in any return to HMRC of benefits provided to the employee.
[12] The effect of the MAP for direct tax purposes was therefore that the employee's taxable salary was reduced by an amount equal to the amount of the payment of the travel and subsistence expenses paid to the employee plus the MAP adjustment. The employee was nevertheless better off under the MAP because he or she received the payment of expenses free of income tax and NICs which Pertemps was not required to deduct by virtue...
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The Commissioners for HM Revenue and Customs v Pertemps Ltd
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