The First Tier Tax Tribunal recently gave judgment in Reed Employment Plc & Others v HMRC [2012] UKFTT 28 (TC), a £ multi-million case concerning the tax treatment of certain payments, described as “travel allowances”, to Reed’s temporary employees. The case was heard in March and April 2011 and is likely to be of interest to both tax and employment law practitioners.

In a detailed judgment, the Tribunal considered whether Reed’s travel allowance schemes were incorporated into its temporary employees’ contracts and whether they amounted to an effective salary sacrifice.  The Tribunal then went on to consider whether the expenses were deductible, which depended on the question whether the relevant contracts of employment were “over-arching” or “job-by-job” contracts.

Adam Tolley, instructed by HMRC, with Malcolm Gammie QC, Abra Bompas and Kate Balmer, successfully argued that the travel allowance schemes did not amount to an effective salary sacrifice and that, even if there had been an effective salary sacrifice, any such allowances were ordinary commuting expenses and so taxable.  Moreover, Reed’s temporary employees were not engaged under an overarching, or ‘umbrella’, contract of employment.  It followed that, in travelling to each assignment, the temporary employees were travelling to a permanent, rather than a temporary, workplace for the purposes of ss338 and 339 ITEPA.  The expenses were not therefore deductible.”