In HMRC v Pertemps Ltd: [2019] UKUT 0234 (TCC) the Upper Tribunal (UT) has confirmed that providing temporary staff with a salary sacrifice scheme in consideration for a small administration cost was not an economic activity and a supply for VAT made by the employer agency, it was simply an efficient method of paying staff.

Pertemps, an employment agency provided its temporary staff (temps) with a choice of payment methods.

Receive a higher salary rate per hour and claim your own expenses for tax, or

Participate in a ‘mobile advantage plan’ (MAP) scheme under which:

  • Temps agreed to receive a lower rate of pay under a Salary sacrifice agreement.
  • 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).
  • Temps were charged ‘an adjustment’ of between 50p and £1 per shift for operation of the MAP.
  • The scheme saved both the employee and employer National Insurance.

HMRC assessed the company VAT on the salary sacrifice, claiming that the sacrifice amounted to a supply of services by the employer to its staff for consideration and subject to VAT.

  • The company appealed against two assessments totalling c£716k.

The First Tier Tribunal (FTT) decided in favour of the company, concluding that:

  • The operation of the MAP was a supply for VAT purposes however, 
  • it did not constitute an economic activity and therefore was not within the scope of VAT.
  • It also considered whether, such a supply was exempt as a “transfer or receipt of, or any dealing with, money” within Item 1, Group 5 of Schedule 9 to VATA94 and confirmed that it was.

HMRC appealed to the UT, its appeal being that the FTT was wrong there was a supply, and it was of an economic activity and that supply was not exempt.

The company appealed that the FTT had been wrong to decide that there was any economic activity.

The UT found that:

  • Pertemps was simply paying the participating employees in one (tax efficient) way rather than another.
  • The service supplied by Pertemps was payrolling expenses: the operation of the MAP provided the employees with a cash flow benefit.
  • The MAP adjustment of £1 or 50p was not consideration for a service supplied to the employees.
  • The economic reality is that Pertemps offered its employees two methods of being remunerated in its employment contract, each of which had slightly different tax consequences and, as a result, Pertemps agreed to pay slightly different salaries.

In conclusion, whilst accepting that the MAP adjustment is capable of being consideration, there is no supply of services for VAT purposes.

Having regard to economic reality, did the supplier carry on any economic activity? The UT found not:

  • Pertemps was not providing accountancy or book-keeping services to the employees.
  • Pertemps was acting as an employer in making deductions of tax and NICs in accordance with the law.
  • The employees did not receive anything in return for the payment of the MAP adjustment which might be regarded as an administration service to the employees.

The UT also considered whether the operation of the MAP resulted in a transaction in a right to receive a payment of money and a “dealing in money” within item 1 Group 5 Schedule 9.

It decided that:

  • An agreement to change the terms of a contract (or allow the employee to exercise such an option) is not a payment or transfer or “dealing in money”. That remains true even where the effect of the change is to change the way the payment is characterised or calculated.
  • There was no exchange of money, merely an agreement to pay an amount of salary as expenses because it was more tax efficient.


  • Both UT and FTT had benefit of being able to rely on the recent decision of the Appeal Court in Wakefield College v HMRC [2018] EWCA Civ 952which provides a useful summary when considering if something is a supply and if so whether there is an economic activity.
  • The PAYE rules on salary sacrifice changed in 2017 and so agencies have adapted this type of model.

Useful links

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: 

HMRC v Pertemps Ltd: [2019] UKUT 0234 (TCC)

FTT decision

Pertemps Limited v HMRC [2018] TC06583


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