Exchequer Solutions Ltd v The Commissioners for HMRC
[2024] UKUT 25 (TCC)
Mainpay Ltd v The Commissioners For HMRC
16 August 2024
[2024] UKUT 233 (TCC)
Upper Tribunal
Mainpay, an umbrella company, claimed tax deductions for worker expense reimbursements. The court said they didn't follow the rules (no overarching contract, no HMRC permission for the payment method). They also didn't get good enough tax advice, leading to penalties.
Key Facts
- •Mainpay Limited is an umbrella company engaging temporary workers.
- •Mainpay reimbursed workers' subsistence expenses using scale rates and claimed these reimbursements were deductible.
- •HMRC disagreed, arguing each workplace was a permanent workplace and scale rates couldn't be used without a dispensation.
- •HMRC issued determinations for PAYE and decision notices for NICs.
- •For two tax years, assessments were only valid if Mainpay's loss of tax was shown to be brought about carelessly.
- •Mainpay used two contracts: the 2010 Contract (not a contract of employment) and the 2013 Contract (a contract of employment).
- •The 2013 Contract required Mainpay's consent for workers to take other employment, but this wasn't enforced in practice.
- •Mainpay paid statutory benefits such as sick pay.
- •Most workers had only one assignment per year, lasting 8-13 weeks on average.
Legal Principles
Contract of service exists if three conditions are met: mutuality of obligation, control, and consistency.
Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497
Deduction for travel expenses allowed if employee is obliged to incur and pay them, and expenses are attributable to necessary attendance at a place performing employment duties. This doesn't apply to ordinary commuting (travel between home and permanent workplace).
ITEPA sections 338
Definition of 'workplace' and 'permanent workplace'. A place is not a temporary workplace if employee attendance comprises all or almost all of the employment period.
ITEPA sections 339
Benchmark scale rates for subsistence can only be used with an HMRC dispensation.
Revenue and Customs brief 24/09 and ITEPA section 65
An assessment can be made within six years if loss of tax was brought about carelessly (failure to take reasonable care).
TMA sections 36(1), 118(5)
Mutuality of obligation must exist throughout the entire contract, including gaps between assignments, to constitute an overarching contract of employment.
Exchequer Solutions Ltd v HMRC [2024] UKUT 00025 (TCC), Cotswold Developments Construction Limited v Williams [2006] IRLR 181, Quashie v Stringfellows Restaurant Limited [2013] IRLR 99
A contractual discretion must be exercised rationally and in good faith unless explicitly stated otherwise.
Braganza v BP Shipping Limited [2015] UKSC 17, Brogden v Investec Bank plc [2014] EWHC 2785 (Comm)
Outcomes
Appeal dismissed; 2013 Contract not an overarching contract of employment.
Lack of mutuality of obligation on the part of the workers; no obligation to accept work, despite Mainpay's obligation to offer work.
Appeal dismissed; successive assignments under the contracts are separate employments, not a single employment.
ITEPA links 'employment' to specific contracts; each assignment is a separate contract of service.
Appeal dismissed; each workplace is a permanent workplace.
Each assignment is a separate employment; section 339(5)(a)(ii) prevents each workplace from being a temporary workplace; 'regularly attends' means daily attendance during the employment.
Appeal dismissed; benchmark scale rates cannot be used without an HMRC dispensation.
ITEPA requires evidence of actual expenses incurred; section 65 is an administrative provision, not authorization for estimated expenses; Mainpay's arrangements weren't a genuine attempt to reimburse actual expenses.
Appeal dismissed; loss of tax for 2010/11 and 2011/12 was brought about carelessly.
Mainpay failed to take reasonable care by not obtaining sufficient advice on whether the 2010 contract created an overarching contract of employment; this caused the loss of tax.