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UK – Latest Court of Appeal decision goes against Reed in ‘umbrella’ case

31 July 2015

The saga of Reed’s appeals from 2012 against a possible ultimate liability to HMRC of up to £158 million may be coming to an end. The Court of Appeal dismissed recent appeals in a judgment dated 28 July

A judgment made in January 2012 found that Pay As You Earn (PAYE) and National Insurance Contributions (NICs) should have been paid on the entirety of Reed's employed temporary worker salaries between 1998 and 2006. The potential total includes interest on the tax and NICs due amounting to £158 million of unpaid tax.

Over the eight year period, according to a government press release, Reed described part of the salary earned by its employed temps as expenses for travel to work that were paid without making deductions for PAYE and NICs. Reed had argued that, because HM Revenue and Customs (HMRC) originally allowed these arrangements, the employer could not now be expected to pay any PAYE and NICs due on the expense reimbursements.

In 2014, the Upper Tribunal endorsed an earlier First-tier Tribunal judgment which found that the expense payments were part of the employed temps' ordinary salary payments and, as such, PAYE and NICs were due on them. It also found that, when HMRC originally considered Reed's arrangements, it had not been given a full picture by the company of how they worked. Reed’s appeal of the ruling was heard last week.

International employment law firm, Osborne Clarke, suggest that It is possible that some other organisations who ran arrangements (relating to tax free expenses for agency workers) similar to those run by Reed may have retrospective liabilities as well, though it is suspected that many of the features which caused problems in this case were unique to the Reed situation. 

As suggested by Osborne Clarke, the proposed new expenses legislation (due to come into force in April 2016) may make this ruling of mainly academic interest, though a liability of up to £158 million may have a very material effect on Reed.