Fleets are again being urged to make sure salary sacrifice arrangements are compliant with Government tax rules.

The warning comes in the wake of specialist recruiter Reed losing a £158-million battle with the taxman over footing the travel and subsistence bills of temporary job candidates.

They were meant to be part of a salary sacrifice arrangement, but a tribunal found that the papers put in place with the employees did not amount to a change of contract and therefore that PAYE and Class 1 National Insurance should arise on the gross salary (pre- sacrifice).

Alastair Kendrick, tax director at MHA MacIntyre Hudson, said: “It is an important reminder that those entering into salary sacrifice schemes need to ensure there is a change in the employees contractual rights to earnings.

“We see schemes introduced without tax sign off and given HMRC’s reluctance to give prior agreement this leaves employers exposed.”

Nathan Male, a director in Deloitte Car Consulting, said: “This case is a timely reminder to employers to ensure all salary sacrifice arrangements are correctly structured and effective for employment tax purposes.

“We are currently seeing an increasing number of employers implementing company car salary sacrifice arrangements due to the benefits available to both employees and employers. This case does, however, demonstrate the need for employers to structure their schemes correctly to avoid the problems illustrated by the case.

“We have experienced some employers being told the implementation of a company car salary sacrifice arrangement has received blanket approval by HMRC. This is not the case. HMRC will only comment on the effectiveness of a scheme on an employer-by-employer basis.”

Mike Moore, a director in Deloitte Car Consulting, added: “The case highlights the need for all employers to ensure their salary sacrifice arrangements are transparent and clearly communicated to employees.

“The arrangements in this particular case have similarities with car allowance and employee car ownership schemes where the car allowance is reduced on receipt of an income tax and NI free mileage allowance, or Approved Mileage Allowance Payments.

“Employers operating such arrangements may wish to revisit the employee communications and payslip design for their schemes to ensure they clearly explain how the scheme operates.

“Clarity on the financial impact for an employee, including statutory and state benefits, is an essential element of the communication. This is particularly important if the employer retains the employee NI saving, and even more so if the tax relief saving is retained.”

Moore continued: “As employers look to deliver cost efficiencies around fleet, this case demonstrates the significant importance of carefully designing and implementing any arrangements which affect the tax and NI treatment of providing cars or cash allowances.”