Employment giant Reed has been fighting a long-running battle with the revenue over unpaid tax on the salaries of thousands of temporary workers.

The Upper Tribunal tax court has now backed an earlier judgment which found that Pay As You Earn (PAYE) and National Insurance Contributions (NICs) should have been paid on the all of Reed’s employed temps’ salaries between 1998 and 2006.

Over the eight year period, Reed described part of the salary earned by its employed temps as expenses for travel to work that were paid without making deductions for PAYE and NICs.

Reed had argued that, because HM Revenue and Customs originally allowed these arrangements, the employer could not now be expected to pay any PAYE and NICs due on the expense reimbursements.

But the Upper Tribunal has now endorsed an earlier judgement which found that the expense payments were part of the employed temps’ ordinary salary payments and, as such, PAYE and NICs were due on them.

Ruth Owen, Director General Personal Tax,HMRC, said: “This case shows that HMRC is determined to ensure everyone pays their fair share of tax to fund vital public services.

“The department has used every method at its disposal to secure the tax due, and its position on the case has now been backed by two courts.”

One construction tax expert said: “This definitely seems to be sending out a message that HMRC is determined to increase its tax haul.

“It will make a lot of construction people nervous in light of the current clampdown on false self-employment.”

Reed said: “We are disappointed with the decision of the Upper Tribunal and we will be seeking leave to appeal.

“This is a dispute between Reed and HMRC concerning arrangements that were in place over eight years ago. It does not have an impact on temporary employees past or present.  Even if some tax is eventually due, the amount is still in dispute.”