In Reed Employment v HMRC [2015] EWCA Civ 805 the Court of Appeal agreed with the findings of the UT and FTT that a major employment agency's salary sacrifice-travel scheme was ineffective for tax.

Reed, an employment agency, made use of the employee travel rules to reduce the taxable pay of some 5,000 workers.

  • Workers entered into a salary sacrifice agreement under which they gave up pay and were paid travel and subsistence allowances instead, their net pay was unchanged.
  • Travel allowances were paid on the basis that travel was being made to temporary workplaces attended under an overarching employment contract.
  • Many workers did not understand the deductions made on their payslips which is why it came to HMRC’s attention.

The First Tier Tax Tribunal (FTT) found that the salary sacrifice was not effective as the workers could opt in and out of the scheme, and had not given up their pay, there was no sacrifice as such. No benefit was received by the employees, as Reed kept most of the profits under the scheme. The UT agreed.

On further appeal the Court of Appeal found no evidence of any reduction in remuneration: there was in fact no salary sacrifice.

The workers contracts were not really overarching contacts of employment at all. Although there was a single contract, its terms meant that workers were unpaid and no employment relationship existed between assignments. The result according to the FTT was that each assignment represented a single employment and the workplace so attended was therefore not temporary because it was the only workplace for the duration of the employment. This meant that travel to and from each assignment was ordinary commuting and disallowable for tax.


  • There is approximately £158 million in disputed taxes in this case: this appears to be the end of the road for Reed.
  • Although this case affects agencies, it may also affect any other employer who is relying on over-aching employment contracts in order to meet the temporary workplace rules.
  • Companies should avoid salary sacrifice schemes that their employees do not understand.
  • An interesting point was raised over whether employees should need to receive any benefit in order to make an effective salary sacrifice.
  • A salary sacrifice has to reflect a genuine change in the contract, so no opting in and out again.
  • If an employment contract is intended to be an overarching contact of employment it needs to be demonstrated that it genuinely is so throughout.
  • From 6 April 2016 tax relief under the temporary workplace rule can be restricted for workers who supply their services via an employment intermediary.  This includes where services are provided via an employment agency and they are subject to the Supervision, Control or Direction (SDC) of their end client, see Travel (employers guide).


Court of Appeal decision: Reed Employment PLC v HMRC [2015] EWCA Civ 805

UT decision: Reed Employment PLC v HMRC [2014] UKUT 0160 (TCC) 

FTT decision: Reed Employment PLC  & other Reed companies [2012] UKFTT 28 (TC) TC01727