In a recent case of salary sacrifice HMRC’s guidance was held to be incorrect.
The case of Peninsula Business Services Ltd v Donaldson was about whether child care vouchers allowable in place of salary under a salary sacrifice scheme run by the employer should continue to be paid during a period of maternity leave. HMRC’s guidance issued in 2008 said that childcare vouchers are non-cash benefits rather than “remuneration”, and therefore should be maintained during maternity leave. However, Peninsula disagreed with this guidance and the position was challenged by an employee of Peninsula under both maternity and discrimination laws. The case reached the Employment Appeal Tribunal that held that HMRC’s guidance was wrong, childcare vouchers under a salary sacrifice arrangement are remuneration and therefore do not need to be paid during a period of maternity leave.
This ruling closely follows the admission by HMRC that it needs to make a change to the new law on travel and subsistence expenses for temporary workers, which has widely affected the umbrella model. “S.339A ITEPA 2003 is due to be altered after only two months in place because HMRC recognises that it does not reflect their intention,” said Theresa Mimnagh, Associate Director of the legal and compliance consultancy Lawspeed which specialises in advising the recruitment sector and supply agencies. “In addition prior to the implementation of S.339A HMRC’s advice relating to what amounts to pay under the Agency Workers Regulations 2010 wholly conflicted with guidance from the Department of BIS, with HMRC stating that expenses are not ‘pay’ and BIS stating the exact opposite.”
Mimnagh continued “There have been many cases over the years where HMRC’s guidance has been either wrong or misleading despite the best efforts by HMRC to be helpful. What is important is the law, not the guidance. It is really important to understand this as people are turning to HMRC’s guidance to try and understand the new travel and subsistence tax relief test that relies upon a confusing supervision, direction or control test. The guidance is nothing more than that, guidance and should not be mistaken for the full legal position.”
Lawspeed will be discussing this and a whole range of other tax related relationship issues at its forthcoming “Taxing Times” seminar in London on 16th June 2016. “Agencies face a particular number of potential threats as a result of the recent tax changes and we will be reviewing all of these, clarifying the actual position and advising upon practical steps that can be taken to avoid losing out”, said Mimnagh. For full details about the seminar and how to book visit this link