In a decision dated 7 August 2019 (HMRC v Pertemps Ltd [2019] UKUT 234 (TCC)), the Upper Tax Tribunal dismissed HMRC’s appeal and held that the operation by Pertemps of a salary sacrifice scheme providing travel and subsistence expenses to employees working on temporary assignments was not an economic activity for VAT purposes.

Pertemps offered their temporary employees the option of being paid a salary, out of which they would have to meet any travel and subsistence expenses or participating in the Mobile Advantage Plan (‘MAP’). Under the MAP, temps 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.

The advantage for temps 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.

HMRC took the view that the MAP involved a taxable supply of services by Pertemps to its participating employees in return for the MAP adjustment of £1 or 50p and that Pertemps was liable to account for VAT on those amounts. Accordingly, HMRC assessed Pertemps for VAT of £715,918 in two assessments covering periods 07/09 to 07/14.

Pertemps appealed to the First-tier Tribunal (‘FTT’) which 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. The FTT allowed the appeal.

HMRC appealed to the Upper Tribunal which disagreed with the FTT in finding that Pertemps had supplied anything which might be regarded as an administrative service to its employees. Even if Pertemps had been providing a service, the Upper Tribunal agreed with the FTT’s conclusion that because Pertemps and any other employer could only offer such a scheme to its own employees, the operation of the MAP was not an economic activity.

It is not known whether HMRC intend to appeal the decision further.