Mileage allowances

The taxpayer companies were employment agencies which supplied temporary workers who were employees of the taxpayers and known as “employed temps”. They were paid allowances to cover travelling expenses.

An HMRC officer granted a dispensation in 1998 under which the taxpayers were not required to account for PAYE and National Insurance. The tax department revoked the dispensation in 2006 after becoming concerned about the arrangement.

The companies continued to pay travel allowances without accounting for PAYE and the Revenue issued determinations in 2007 under Income Tax (PAYE) Regulations 2003 (SI 2003/2682) reg 80.

The First-Tier Tribunal dismissed the taxpayers’ appeals holding that the allowances were payments of earnings.

The matter moved to the upper tribunal where the judge Mrs Justice Proudman said the key to whether the employees had made an effective salary sacrifice ascertaining the true construction of the contractual arrangements.

It...