Legal battle over deductibility of travel expenses for construction workers reaches Upper Tribunal in Exchequer Solutions Ltd v HMRC: Key issues analyzed

Citation: [2024] UKUT 25 (TCC)
Judgment on


In the case of Exchequer Solutions Ltd v The Commissioners for HM Revenue and Customs ([2024] UKUT 25 (TCC)), the Upper Tribunal (Tax and Chancery Chamber) considered an appeal against a decision by the First-tier Tribunal (Tax Chamber). The case revolved around the deductibility of travel expense reimbursements made by an umbrella company to its employees in the construction industry for purposes of income tax and National Insurance Contributions (NICs).

Key Facts

Exchequer Solutions Ltd (ESL), which provides umbrella company services to the construction sector, contracts with employment agencies to employ individuals for specific construction work assignments. The central question was whether there existed an overarching contract of employment covering both the assignments and the gaps in between them. This was pivotal in determining if different worksites could be considered ‘temporary workplaces’, allowing travel expenses to be deductible from tax and NICs. If there was no overarching contract, each worksite was deemed a ‘permanent workplace’, thus disallowing deductions for ordinary commuting expenses.

Additionally, ESL challenged the validity of the determinations made under Regulation 80 Income Tax (Pay as You Earn) Regulations 2003 and the treatment of reimbursement payments as ‘earnings’ for NIC purposes.

The legal principles involved in this case included:

  1. Mutuality of Obligation: The common law concept that determines the existence of an employment contract. It necessitates some form of mutual obligation between the employer and the employee during the entire duration of the contract, including any gaps between assignments.

  2. Contract Interpretation: Contracts are interpreted using orthodox principles summarized in Arnold v Britton, focusing on the parties’ intentions from the language used in the contract, informed by facts and circumstances known at the time the contract was made.

  3. Regulation 80 Determinations: Regulation 80 enables HMRC to determine unpaid tax amounts. ESL contended that HMRC’s determinations were invalid, arguing that they failed to specify the employee classes as required by the Regulation.

  4. Earnings for NIC Purposes: The definition of ‘earnings’ for NICs, as per s3(1)(a) of the Social Security (Contributions and Benefits) Act 1992, includes any remuneration or profit derived from employment. ESL argued that the reimbursement for travel expenses did not constitute earnings for NICs.

  5. Application of s114 Taxes Management Act 1970: The section provides that an assessment or determination shall not be invalidated for want of form or a minor omission if it is essentially compliant with the intent of the Taxes Acts and correctly identifies the person or property charged as per common understanding.


The Upper Tribunal dismissed ESL’s appeal on all grounds. The Tribunal held:

  1. No overarching contract of employment was present, as there was no mutuality of obligation covering the periods between assignments.

  2. The FTT had not misinterpreted the contract nor misdirected itself in applying the principles of contract interpretation.

  3. Regulation 80 determinations were valid. The accompanying correspondence clarified any ambiguities, and section 114(1) TMA would have cured any defects.

  4. Reimbursement of travel expenses was ‘earnings’ for NIC purposes, as it constituted a financial benefit or reward for services, even though it was not deductible for tax purposes.


The Exchequer Solutions Ltd case reaffirms the importance of mutuality of obligation in establishing a contract of employment, particularly in the context of umbrella companies. It illustrates the application of established legal principles concerning contract interpretation and the boundaries of assessable earnings for tax and NICs. Lastly, it upholds the effectiveness of Regulation 80 determinations and the remedial function of s114 TMA, provided there is essential compliance with the Taxes Acts and the identification of charged individuals is clear. This case provides valuable legal precedence for understanding employment status in contingent labor arrangements and the treatment of reimbursed expenses for tax and NIC purposes.

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