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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Reed Employment Plc & Ors v HM Revenue and Customs [2015] EWCA Civ 805 (28 July 2015) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2015/805.html Cite as: [2015] STI 2531, [2015] BTC 24, [2015] EWCA Civ 805, [2015] STC 2518 |
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ON APPEAL FROM THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
FTC342012
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LEWISON
and
LORD JUSTICE FLOYD
____________________
REED EMPLOYMENT PLC & ORS |
Appellants |
|
- and - |
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HER MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
____________________
WordWave International Limited
Trading as DTI
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
MR MALCOLM GAMMIE QC, MR ADAM TOLLEY QC & MS KATE BALMER (instructed by The Solicitors Office, HMRC) for the Respondents
Hearing dates : 21 and 22 July 2015
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Crown Copyright ©
Lord Justice Lewison:
Introduction
Factual background
The proceedings and issues
i) Issue 1. Under the employed temps' contracts of employment did Reed (a) make payments reimbursing the employed temps' travel expenses in addition to paying their wages or (b) make a single global payment in which the payment on account of travel expenses was simply part of the employed temps' overall wages. Reed contends for (a). HMRC contend for (b); and both the FTT and the Upper Tribunal agreed with HMRC. If (but only if) Reed succeed on issue 1:ii) Issue 2. Did the employed temps travel to temporary or permanent workplaces? Reed contends that they travelled to temporary workplaces. HMRC contend that they travelled to permanent workplaces and both the FTT and the Upper Tribunal agreed with HMRC. If (but only if) Reed succeed on issue 1 but fail on issue 2:
iii) Issue 3. Which of the sums in question are "sums paid in respect of expenses" and which are "earnings"? Reed contends that the test is whether the expenses are actually incurred by reason of the employment. HMRC contend that the test is whether the expenses are actually incurred in performance of the duties of the employment. Both the FTT and the Upper Tribunal agreed with HMRC.
iv) Issue 4. As mentioned Reed secured a series of dispensations from HMRC which were later withdrawn. Reed challenged by judicial review HMRC's decision to charge PAYE and NICs despite the earlier grant of the dispensation. The Upper Tribunal held that Reed should not be permitted to amend its grounds for judicial review and also decided that Reed had no legitimate expectation which would support the claim for judicial review, essentially because Reed had failed to make full disclosure in persuading HMRC to grant the dispensations. Thus the Upper Tribunal refused permission to apply for judicial review. Reed challenges both the refusal of permission to amend and also the finding that it made inadequate disclosure to HMRC.
Legal framework
"(2) … "earnings", in relation to an employment, means—
(a) any salary, wages or fee,
(b) any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money's worth, or
(c) anything else that constitutes an emolument of the employment.
(3) For the purposes of subsection (2) "money's worth" means something that is—
(a) of direct monetary value to the employee, or
(b) capable of being converted into money or something of direct monetary value to the employee."
Contract terms
"In my view, there can be no doubt that the respondent obtained from his employers the right to use a car on terms which involved that he should pay to them whatever was from time to time an appropriate hire charge. As a matter of convenience he agreed that his payment was to be set off or deducted week by week from the amount which by his labour he had earned and which his employers therefore owed him. To dress that up as a wage reduction seems to me to be fanciful. The terms and conditions relating to the method of computing the respondent's earnings were in no way changed. If two craftsmen worked under precisely the same conditions so that they earned precisely the same amount and if one joined the car loan scheme while the other did not it would, in my view, be a mere delusion to treat the former as having agreed to a wage reduction (being a wage reduction which was to vary from time to time according as to how the cost of hiring the car varied). In truth there would have been an arranged and agreed deduction from wages. A deduction by any other name would be a payment just the same."
"During the operation of the scheme there was an allocation for the purposes of the scheme of wages already earned and not, in my opinion, a fresh contract of employment at a reduced wage. This is no less true although the alteration is made through the employer by returning the money to him. The allocation is for the specific purpose of the scheme made at the request of the employee and is to be treated as a deduction from his gross wage."
"It is quite clear that the exercise of this option to have the personal use of a motor-car in lieu of full wages had no effect upon the employment of the respondent in the sense that whether he had full wages or the use of a motor-car he performed precisely the same duties during precisely the same hours for a recompense at precisely the same rates as before and that his gross wages, taking this example with all its complex features, amounted to £33 9s. 2d. From this, though for a reason unspecified in the slip, the amount of £2 13s. 6d. due in respect of the operation of the car loan service was deducted."
"The weekly payslips issued by the company to Mr. Bell thereafter and receipted by him, disclose that he continued to be credited with flat rate wages, overtime and shift premiums and bonuses for the hours he worked at precisely the same rates as previously. These were, no doubt, those applicable to craftsmen of his grade under national or shop agreements. But he was debited with a weekly sum for the hire of the car, though no description of what it was appeared upon the payslip. When he was absent sick no deduction was made.
In my view, the overwhelming inference is that the true agreement between him and the company was that the wages constituting the consideration for his services under his contract of employment should remain unchanged but that the company should be entitled each week to recoup themselves out of his wages, but not from any other source, the amount of his liability to them under his collateral agreement for the hire of the car."
RTA
"5. The hourly rate for the assignment is as stated on the Temporary Employee's application form held at the branch where the Temporary Employee is registered.
7. Reed shall pay wages to the Temporary Employee only in respect of hours worked as certified by the Client and calculated at the hourly rates (a proportion of which may be Profit Related Pay and Travel Expenses) agreed at the commencement of the assignment."
"REED'S TRAVEL ALLOWANCE SCHEME
Participation in this scheme means that for each day that you work in a booking for Reed you can benefit from an amount additional to your normal hourly rate.
HOW DOES THE SCHEME WORK?
If you are eligible (see below) you will receive a Travel Allowance for each day that you work as a Reed Temporary: The value of your Travel Allowance will show on your payslip that week. The scheme is designed to be a tax efficient benefit agreed with the Inland Revenue.
HOW MUCH WILL I RECEIVE?
The current rate is an extra £1.50 a day for each day you work over 5 hours with the same client or, if you work less than 5 hours, the rate is 75p per day. These rates may be revised from time to time. So, if you have worked more than 5 hours a day for us every weekday for a year you will receive £378 over the course of the year. Tax and National Insurance is taken off the Travel Allowance Scheme amount at your normal rate.
WHO IS ELIGIBLE?
All temporaries working for Reed Staffing Services Limited are eligible except those who submit a claim for travel expenses. Unfortunately, if you trade with Reed as a Limited Company, you will not be able to be included in the scheme. Also, if you work for Reed Agency Services, then you will not be able to participate. Your Reed branch will be able to inform you if you are working in a Reed Agency Services booking.
DO I NEED TO DO ANYTHING TO BE INCLUDED IN THE SCHEME?
No, if you are eligible, you need do nothing. Please note that if you are in the scheme, you must not include your actual travel and subsistence costs incurred whilst working through Reed as an expense on your tax return. If for any reason you wish to opt out of the scheme, you may do so by letting us know in writing.
HOW IS THE SCHEME SHOWN ON MY PAY SLIP?
• Your total travel and subsistence allowance is shown as "Travel Allowance" beneath your timesheet pay on the left of your payslip. This value is a gross value, ie, Tax and National Insurance will be deducted from it.
• Beneath this a figure appears next to the phrase "Exp Adj". This represents the adjustment to your gross pay to allow for the reduction in the total amount of Income Tax and National Insurance due under the scheme.
• The agreement with the Inland Revenue means that the Tax and National Insurance deductions on your total pay (shown on the right of your payslip) are lower than they would have been without the scheme.
• The end result is that you get more pay in your pocket than you would have without the scheme.
• You can work out approximately how much more you get by taking your normal rate of tax off the Travel Allowance sum.
WHAT DO I DO NOW?
All you need do, as an Inland Revenue requirement of the scheme, is to tell us your daily mileage and if you use public transport to travel to work. You can do this by filling in the boxes on your timesheet each week. Please make sure that you do this, if appropriate, as failure to do so may result in your exclusion from this benefit."
"The total so determined was then adjusted, as the scheme was explained to us, first by the deduction of an amount which was equal to the allowance (for travel expenses, subsistence or both) permitted in the case of that temporary employee by the application of the scale rates set out in the then current dispensation. The tax and NICs for which the employed temp was liable were then calculated by reference to the net amount. The amount previously deducted was then added back, as a non-taxable payment. The taxable pay was then reduced again, by such an amount (the 'Exp Adj' figure) that the net sum the employed temp received was the same as he or she would have received in the absence of the RTA scheme. The 'Exp Adj' figure was simply the difference between the tax and NICs the employed temp would have paid had he or she not participated in the scheme, and the reduced tax and NICs which resulted from that participation. Finally, the taxable pay was increased (taking the figures applying from 2001) by £1.50 or 75p per day, depending on the number of hours worked, a sum which on the payslips was misleadingly called 'travel allowance', though elsewhere it was described as a 'travel-to-work payment' (the term we use in this decision). The benefit to the employee of being in the scheme was the after-tax/NICs amount of this payment."
"The description of the RTA scheme set out in the handbook issued to employed temps in the latter part of 2001 (which is set out at para [106] above) makes no mention whatever of any salary sacrifice, not merely in the sense that the phrase does not appear (the words used are, of course, not in themselves of any significance provided the meaning is clear) but in that there is nothing anywhere to suggest that the employed temps were giving up anything at all. They were offered an additional benefit, what in that description was referred to as the 'Travel Allowance' (for which we have used the term travel-to-work payment), but one searches in vain for any indication that part of the salary had to be given up, even if it was nevertheless paid in a different guise."
"This statement does not assist Reed because, as we have said, the 'Exp Adj' is, despite its description, a deduction from net pay and it is not claimed to reduce taxable salary, which is necessary to its constituting a salary sacrifice. It is also the wrong amount as the sacrifice should be the amount of the allowance, calculated in accordance with the current dispensation, whereas 'Exp Adj' equals the aggregate of the tax and NICs on the amount of the allowance. In any case it is, at best, doubtful whether any employed temp reading that passage would understand it to mean that he or she was giving up any salary; moreover, the numerous enquiries by concerned employed temps, to Reed and to HMRC, are in our view clear evidence that they did not. Although, as we have said, it may not be necessary for the validity of a contract that both parties fully understand it, it seems to us to be a bare minimum (in this context) that the employed temp should know he or she was required to give up x in order to receive y (even if x and y happen to have the same monetary value). We do not understand how anyone can be said to have agreed to sacrifice anything in complete ignorance. But even if we are wrong in that conclusion, it does not seem to us that the employed temps made a salary sacrifice as a matter of fact."
RTB
"8. The hours of work likely to be involved and the hourly rate for the assignment will be as notified to the Temporary Employee prior to the commencement of the assignment.
14. The Temporary Employee will be paid only in respect of hours worked which have been verified, at the hourly rates agreed at the commencement of the assignment or secondment.
15. Reed undertakes to pay the Temporary Employee in respect of work done, whether or not the Client has paid Reed in respect of such work.
23. When properly owing, Reed shall pay wages for hours worked, holiday pay and where appropriate other benefit such as travel allowance to which the Temporary Employee may be entitled…"
"'How does the RTB differ from the Reed Travel Allowance Scheme?
In short, participating in the Reed Travel Allowance Scheme meant that an individual would benefit by receiving an additional 75p or £1.50 per day, depending on the number of hours they worked. The RTB however works differently, in that the benefit to each Temporary/Contractor will depend on their individual Tax and NI circumstances.
What do the Temporaries/Contractors need to do?
As before, there will be a box on the timesheet for the Temporary/Contractor to indicate if they travel to work by Public Transport as well as a box to complete the number of miles they travel to work if they use their own transport. However an additional box will now be included on the timesheets. This box will need to be completed by the Temporary/Contractor with the number of days in which their day covers a meal break.
What do the figures on the matrix mean?
This table shows the daily amount by which the Temporary/Contractor is agreeing for their gross pay to be reduced by in order that they can receive the net benefit of participating in the RTB."
"'As a Temporary Worker, Reed offers you the opportunity to increase your take-home pay through the Reed Travel Benefit ("RTB").
The travel benefit has been negotiated with HM Revenue and Customs on your behalf and provides you with a tax- and NI-free travel and subsistence allowance as part of your pay rate. This reduces your taxable and NI-able income and therefore increases your take-home pay.
Will I ever receive less pay by being in the RTB?
No. On your payslip each week, the Tax, National Insurance and Net Pay that you would have received had you not participated in the RTB will be shown. This will demonstrate that you do not receive less net pay through the RTB and in the majority of cases you will receive more.
How do I claim my Travel Benefit?
We require you to complete your Timesheet with the information listed below, which enables Reed to calculate your Tax and National Insurance free expense value.
To allow Reed to apply the RTB, you will need to make a salary sacrifice reduction to your gross pay. The amount of this reduction will depend on your Tax and National Insurance position."
"As before, the employed temps earned a sum calculated by multiplying the agreed hourly rate by the number of hours worked. There was no separate identification of the travel and subsistence allowance claimed to be included, and no differentiation in the calculation of the 'headline' pay between those who did and those who did not incur travelling and subsistence expenses—and one who used public transport one week and walked or cycled to work the next earned the same gross amount in each week (assuming the same hourly rate and the same number of hours). Similarly, two employed temps with identical expenses but different tax and NICs liabilities were treated differently: as we have said, the scheme had only a tenuous link with actual travel and subsistence costs. The revised RTB payslips identified a sum as 'RTB non-taxable exp TP' (or 'RTB Expenses TP'), a payment which one might deduce had been made in respect of expenses, but its make-up was not revealed, nor was there anything on the payslip from which it might be worked out: to do that it was necessary to know the amounts set out in the current dispensation, but they were not revealed. It is apparent that the aggregate of that sum and what is recorded as 'taxable pay TP' equals the 'total payments' (that is, the gross pay less RTB Adj)."
"The supposed sacrifice under the RTA scheme was matched by a corresponding gain, so that there was no true sacrifice. The RTB scheme was different; the sample payslips produced to us show that the amount sacrificed was not the same as the amount gained, but in some cases was higher and in others lower. But we do not think that matters. In our view a salary sacrifice implies reciprocity: the employee gives up a portion of his or her earnings, even if the portion is variable, in exchange for an identified benefit provided by the employer. Reed, however, did not provide any benefit at all; it merely applied the dispensation in order to enable it to attribute part of the pay, entirely notionally, to the reimbursement of expenses, so that the tax and NICs burden could be reduced. Far from providing a benefit to the employed temp, it appropriated a significant part of the saving to itself; and the supposed sacrifice, however it was presented, was no more than an arithmetical adjustment whose purpose was to ensure that Reed secured the intended share of the benefit. It was not, in our view, a sacrifice in the true sense of that word."
"One of the most unique benefits, which you can receive by working for Reed, is the Reed Travel Benefit (RTB). This travel benefit works by offering you:
- Higher net pay through a reduction in taxable and Niable income….
To allow Reed to administer the RTB, we will need to make a small reduction to your gross pay. The amount is dependent on your Tax and National Insurance position and you can see which adjustment will apply to you by referring to the matrix on the following page….
Will I ever receive less pay by being in the RTB?
No. On your payslip each week the Tax and National Insurance and net pay which you would have received had you not participated in the RTB will be shown. This will demonstrate that you will not receive less net pay by being in the RTB and in the majority of cases you will receive more."
Lord Justice Floyd:
Lord Justice Longmore: