Does your agency operate a salary sacrifice scheme, or use an umbrella payroll company to arrive at NET pay? Are tax avoidance schemes about to be closed?
If the answer to this question is yes, then it might be a good time to review your arrangements in light of the outcome of the tribunal case of Reed Group of Companies v HM Revenue & Customs (2012) UKFTT28 (TC).
Reed made travel and subsistence payments under a “salary sacrifice” arrangement, however the tribunal declared that clear contractual arrangements were not in place and so there was not actually a salary sacrifice agreement in place.
Stafforce has for four years refused to operate the Mobile Worker Scheme as in our opinion the Salary Sacrifice model available is neither legal in process nor ethical in principle. There was a NMW Act amendment in the latter part of 2010 which was passed to stop the Mobile Worker Scheme being operated via the Salary Sacrifice model for those paid at NMW or close to NMW. Nevertheless many agencies continued regardless during 2011 and into 2012, though most have now changed from a Salary Sacrifice model given the outcome of this tribunal.
So, what does a labour user using an agency that is operating a salary sacrifice scheme have to be concerned about? Well, Reed now faces a tax bill of £158m, yes 158 MILLION POUNDS. Recovery can be made via “debt transfer”, where the HMRC can seek to recover this from not only Reed, but from Reed’s clients, the labour user.
This tribunal demonstrates clearly the need to make sure that any tax avoidance schemes are effective for tax purposes and we strongly recommend that you take legal advice and make appropriate changes as soon as possible.