No VAT on salary sacrifice arrangements FTT decides in Pertemps

Fri 17 Aug 2018

The First tier Tribunal (FTT) has held that Pertemps Ltd did not make a VAT supply by operating a salary sacrifice arrangement relating to travel & subsistence expenses for temps operating through its business.

Background

HMRC had raised an assessment for VAT of around £700k in respect of the quarters ended July 2009 to January 2013. There were further assessments for other periods and a number of assessments stood behind this case.  The salary sacrifice arrangement was known as the mobile advantage plan or “MAP”.  It operated so that the temp agreed to reduce their payment from Pertemps by the amount of their travel and subsistence expenses.  In return Pertemps paid the temp the amount of their travel and subsistence expenses plus a fixed amount (of 50p or £1) per shift.  The advantage to the temp was in cashflow in not being taxed on salary and then having to claim the expenses on their tax return.  Pertemps benefited by not having to pay employer’s national insurance contributions on the amount of the salary reduction.

The ability for temps to claim expenses for travel and subsistence in this way ceased from 6 April 2016, when the legislation was changed so that each assignment of a temporary worker operating through an employment intermediary was deemed to be at a permanent workplace (rather than only being a permanent workplace if the assignment lasted more than 24 months).

Taking guidance from the CJEU decision in Astra Zeneca (case C-40/09) and the Court of Appeal in Wakefield College ([2018] EWCA 952), the FTT considered that there was a supply for VAT purposes by Pertemps to the temp.  However, as this did not constitute an economic activity, no VAT was due.  The situation was distinguished from Astra Zeneca by the fact that it was not Pertemps who were supplying the travel and subsistence service, the MAP service is not something that would be supplied to a third party and does not provide an income stream for Pertemps.

The FTT considered that, if it was wrong on the economic activity point, it would have held that the supply was exempt, being a transaction involving in dealing in money.

Comment

While the decision could be regarded as particular to the facts of this case, it will be interesting to see whether this case progresses further. Those operating salary sacrifice arrangements should be reviewing the VAT aspects of these arrangements to confirm the VAT treatment is correct.  For a further discussion of the employment tax or VAT issues involved, please get in touch with a member of the Mazars employment tax or VAT team.