In Pertemps Limited v HMRC [2018] TC06583 the FTT concluded that a salary sacrifice scheme operated by the taxpayer amounted to a supply to its employees, however it was not an economic activity and therefore outside the scope of VAT. HMRC appealed to the Upper Tribunal who dismissed HMRC's appeal using different reasoning. See HMRC v Pertemps Ltd: [2019] UKUT 0234 (TCC) 

Pertemps (PT) was a representative member of a VAT group which provided temporary and permanent Staff to clients. All temporary workers were employed by PT.

  • Temps were offered the chance to participate in a ‘mobile advantage plan’ scheme:
    • They agreed to sacrifice part of their salary.
    • In exchange they received tax free Travel and Subsistence expenses for qualifying journeys to a temporary workplace.
    • These expenses were covered by a Dispensation agreed with HMRC (before dispensations were replaced on 5 April 2016).
  • HMRC assessed PT for VAT on these salary sacrifices claiming that they were supplies of services for consideration and subject to VAT.
  • PT appealed against two assessments totalling c£716k.

The FTT considered PT’s grounds of appeal:

  • There was no supply for consideration:
    • The FTT did not agree with the taxpayer
    • The exchange of a right to receive a payment of salary for the right to receive a payment of expenses on submission of a claim was a supply for consideration.
  • There was no economic activity:
    • The FTT agreed with the taxpayer.
    • The agreement was not undertaken in order to generate income: there was no income stream.
    • This was not a service that could be provided by a 3rd party supplier.
    • It relies on a dispensation from HMRC to the employer.
    • This was not an activity likely to be carried on by a private undertaking, on a market organised within a professional framework, and generally performed in the interest of generating profit.

Due to the above the taxpayer's appeal was allowed. The FTT also went on to consider, if they had been wrong and it was an economic activity, what rate was applicable to that activity:

  • The economic reality was that it was an exchange of a right to salary for a right to a lower payment of expenses.
  • This was a transaction in a right to receive a payment of money, i.e. dealing in money.
  • The supply, if it amounted to an economic activity, would therefore be exempt.


Staff and VAT

Optional remuneration schemes & salary sacrifice

Travel (employer’s guide)

Subsistence (employer’s guide)

PAYE: P11D dispensations (up to 5 April 2016)

Agency workers: employment intermediaries rules

External link: Pertemps Limited v HMRC [2018] TC06583

UT decision (this was appealed) HMRC v Pertemps Ltd: [2019] UKUT 0234 (TCC) 


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