HMRC defeats employment giant at Court of Appeal over £158m of unpaid tax

The Court of Appeal has upheld a ruling which holds one of the UK's largest employment agencies liable for up to £158m of unpaid tax due on the salaries of thousands of temporary workers it employed, known as 'employed temps'.

Employment giant Reed had aimed to make non-taxable payments to its employed temps for travel expenses with tax and National Insurance Contributions (NICs) with savings being shared between it and the employed temp.

The Court of Appeal looked at the case following an Upper Tribunal decision in April 2014. The tribunal had backed a finding that Pay As You Earn (PAYE) and NICs should have been paid on the entirety of Reed's employed temps' salaries between 1998 and 2006.

Over the eight year period, the employment agency 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 argued that because HMRC originally allowed these arrangements, the employer could not now be expected to pay any tax due on the expense reimbursements.

The Court of Appeal, however, agreed with HMRC's argument that the payments were made as part of overall wages and should have been subject to PAYE and NICs. The court dismissed Reed's appeal and awarded HMRC costs. The potential total includes interest on the tax and NICs due.

Ruth Owen, director general of personal tax at HMRC, 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.'

A spokesperson for Reed said: 'We are extremely disappointed by the decision of the Court of Appeal in this case, which involved complex issues and which we lost on a technical point on the wording of our contracts with our temporary employees.

'We stress that this is a historical tax dispute, covering a period from 2001 until 2006 and will not have an impact on our clients or our temporary employees past and present. We will be working with HMRC to take the matter forward.'