Nov 12 - "Old People Don’t Eat Curry"

Alan Nolan, Senior Partner at Aspire Business Partnership considers the application of the recent judgment in the case of FS Commercial v Gangmasters Licensing Authority.      

As a tax adviser with considerable experience in dealing with regulatory authorities across the length and breadth of the UK, I have given legitimate opinions, espoused my beliefs based on my interpretation of complex tax legislation and have not been afraid to be a voice at the forefront of technical opinion. 

After all, that’s what being an adviser is about.  The question which should now be asked is whether it is acceptable, in these days of austerity to hold a tenable alternative interpretation of legislation and to express that view without fear of being accused of being irrational or worse, of not telling the truth. 

Readers of this article may recall the stance taken by HM Revenue and Customs (HMRC) surrounding the application of salary sacrifice in the low paid sector prior to January 2011.  

HMRC said it couldn’t and shouldn’t be done and referred to guidance on the subject, buried in their web-based manuals.  Experienced employment lawyers and a number of accounting firms took the option to advise their clients that they should accept HMRC’s guidance and not allow employees to sacrifice below the National Minimum Wage (NMW). 
 
I, along with a few others, held the belief that a salary sacrifice for a payment of expenses was indeed lawful irrespective of the level of pay and provided technical support for such a tenable alternative view of the legislation.   A number of employment businesses also held the same view and chose to implement salary sacrifice arrangements which enabled low paid workers to enjoy the same benefits as their higher paid colleagues in the face of apparent HMRC disapproval.

What happened next?

The tenable alternative view was proved to be the correct interpretation of the legislation which ultimately resulted in a change in the law following a period of consultation.
 
So, is it still OK to hold a view which is contrary to that held by HMRC or  the GLA and to act on that view without fear of repercussions from the authorities and the media?

My thoughts are drawn to an investigation into a care home by HMRC when I worked for a mid-tier firm of accountants.  To cut a long story short, the proprietor was accused of suppressing profits through the use of false invoices.  The substance of this accusation? Quite simple really, the Inspector had reviewed the purchase ledger and had identified specific expenditure which he considered couldn't possibly be linked to the trade of the business.

The nature of this expenditure - curry!

The  proprietor had purchased a selection of ready meals in the event that residents could not eat the food which had been prepared by the kitchen - a reasonable explanation and one which has merit you might think.

Not so, in the eyes of the Tax Inspector who insisted on raising additional assessments on the basis that "old people don't eat curry".

If we had accepted this ruling, I suspect that there would be very few balti restaurants left in an around Birmingham or anywhere else for that matter. I put it down to the fact this was a young Inspector who had an unusual perception of his elders, had no experience of care home residents and couldn’t see the possibility that old people did, in fact, eat curry - in short his mind was closed to all the possibilities.

In the days when tax did not make front page headlines (or a middle page full-colour spread), there was no press coverage of such cases.  However, roll the years forward to the present day and the headline in the tabloid press could have read something like this “Parasite tax dodger exploits the elderly in expenses scam”. 

Had a more experienced Inspector been across the table, perhaps the outcome would have been different and an extraordinary amount of time would not have been wasted on an unnecessary appeal which was ultimately determined in the clients favour at a tax tribunal and the potential for unwarranted headlines.     

At first glance the judgment of Employment Judge Porter in the case of FS Commercial v Gangmaster Licensing Authority appears to throw into doubt the validity of granting Income Tax and National Insurance (NIC) relief for qualifying business related travel expenses on an earnings period basis.

However, closer examination of the judgment reveals several problems and a conundrum for both the GLA and HMRC in how they will enforce the ruling which, it should be remembered, was handed down by an employment tribunal which is not a tax tribunal. The latter is the jurisdiction well versed in dealing with the correct interpretation of complex PAYE, Social Security and NMW Regulations.

Both Government departments may now be faced with a tricky appeal and application for judicial review of the decision on the various points of law which have either been misinterpreted or simply ignored by the Employment Judge.

So what can we expect from this judgment?  We have already witnessed a colourful response from the GLA with comment from HMRC, a headline grabbing article from Recruiter and blogs from the tabloid press, all in the space of a frenetic couple of days.

This all fits in nicely with the new fashionable profile of tax which continues to grab front page headlines. HMRC is anxious to prevent tax leakage and appears to have appointed another government department to act as its gatekeeper.  If this judgement is seen as the last word on the matter, we will be failing low paid workers who have the right to claim relief on expenses which they incur in travelling to a temporary workplace without having to make a claim to HMRC at the end of the tax year. 

It is my view, supported by a number of industry advisers, employment businesses and legal counsel that despite the recent judgment, the interpretation of the legislation remains sound. 
 
HMRC is faced with the GLA testing complex legislation in the High Court as part of an application for a GLA licence and also faces having to account for its evidence in a previous case involving the application of NIC in connection with expenses.  This important piece of evidence appears to have been ignored by Employment Judge Porter.

The risk of losing the Judicial Review for HMRC is significant and has wider connotations than the matter placed before Employment Judge Porter, something the Judge may have had at the back of her mind when deliberating on her judgment.

Will HMRC want to take the chance of losing or will we see the announcement of a consultative document as part of the Autumn Statement in December which seeks to clarify the position in favour of the “pay day” concept which sits comfortably with Government intentions surrounding PAYE and NIC including Real Time Information (RTI). 

In this world there is nothing more certain than death and taxes and the fact that old people do eat curry irrespective of what you might read in the press!