Flat-Rate Subsistence Allowance Scheme Produces £158 Million Tax Headache

Posted: 25th January 2012

Leading recruitment firm Reed is reported to have lost its case against HM Revenue and Customs (HMRC) over the ‘salary sacrifice’ scheme it ran for several years for the temporary staff it employed.
Reed supplied temps with a daily subsistence allowance which was effectively provided tax free.HMRC2
Reed insisted it had obtained an HMRC ‘clearance’ for the scheme. A clearance is an agreement by HMRC that a certain course of action will not produce adverse tax consequences, despite being (strictly) outwith tax law. Clearances are often obtained for the treatment of small expense claims.
Despite a damning internal e-mail being produced in which HMRC acknowledged that Reed may well have a strong case that it could rely on undertakings given by HMRC, the Tax Tribunal was unmoved…and Reed now faces a £158 million tax bill as a result.
Reed is set to appeal the decision.
If you have agreed any extra-statutory or concessional treatment with HMRC, it is important to make sure that you have sufficient documentation to cover this to avoid a dispute at a later date. This case is the latest of several in which HMRC have sought to recover tax relating to what appeared to be previously agreed positions.