Key Facts
- •Exchequer Solutions Ltd (ESL) is an umbrella company servicing the construction industry.
- •ESL contracts with agencies to employ individuals for construction assignments.
- •The dispute concerns the deductibility of travel expense reimbursements for PAYE and NICs.
- •The key issue is whether an overarching contract of employment exists between ESL and its employees, covering periods between assignments.
- •If an overarching contract exists, travel expenses are deductible; otherwise, they are considered ordinary commuting expenses and are not deductible.
- •ESL argued that Regulation 80 determinations were invalid and that reimbursement payments were not 'earnings' for NICs purposes.
Legal Principles
Mutuality of obligation is required for a contract of employment.
Ready Mixed Concrete (South-East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497
An overarching contract lacks mutuality if the employer has no obligation to offer work.
HMRC v Atholl House Productions Limited [2022] EWCA Civ 501
Mutuality of obligation must exist throughout the entire contract period, including gaps between assignments.
Quashie v Stringfellows Restaurant Limited [2013] IRLR 99
For tax purposes, travel expense deductions are allowed except for ordinary commuting expenses.
s338 Income Tax (Earnings and Pensions Act) 2003 (ITEPA)
A workplace is not temporary if the employee's attendance comprises all or almost all of the likely employment period.
s339 ITEPA
NICs legislation applies ITEPA provisions on travel expense reimbursements.
paragraph 3 Schedule 3 Social Security (Contributions) Regulations 2001/1004
Contract interpretation involves identifying the parties' intentions through a reasonable reader's eyes, primarily from the contract language.
Arnold v Britton [2015] UKSC 36
Regulation 80 determinations must specify the employees or class of employees.
Regulation 80 Income Tax (Pay as You Earn) Regulations 2003
For NICs purposes, earnings are any remuneration or profit from employment.
s3(1)(a) SS(CB)A 1992
Reimbursement of expenses genuinely incurred in performing duties is not earnings, unless a deeming provision exists.
Owen v Pook [1970] AC 244, Donnelly v Williamson [1982] STC 88, Cheshire Employer and Skills Development Ltd v HMRC [2012] EWCA Civ 1429
Section 114(1) TMA can cure defects in assessments if they are substantially in conformity with the Taxes Acts.
s114(1) Taxes Management Act 1970 (TMA)
Outcomes
Appeal dismissed.
The FTT correctly found no overarching contract of employment due to lack of mutuality of obligation. The Regulation 80 determinations were valid, and the travel expense reimbursements were correctly treated as NICs earnings.