In Mainpay Limited v HMRC [2024] UKUT 0023, the Upper Tribunal (UT) confirmed that employees of an umbrella company couldn't claim an allowable deduction for reimbursed travel or subsistence expenses. Each agency assignment was deemed a separate employment, making the underlying workplace permanent.
From 6 April 2016, s.339A ITEPA 2003 restricts relief on home-to-work travel and subsistence expenses for workers engaged through an 'employment intermediary'. For more information see, Travel (employer's guide). This case pertains to the legislation that was in effect before April 2016.
Mainpay Limited (Mainpay) is an Umbrella Company. Mainpay entered into contracts with workers to carry out assignments (services) for end users such as hospitals and schools via an employment agency.
- Mainpay claimed it had a single overarching contract of employment with each worker, under which workers carried out assignments at multiple temporary workplaces, such that:
- Reimbursed Travel expenses for travel to and from each temporary workplace were deductible.
- Subsistence could be repaid without tax and National Insurance liabilities, using benchmark rates without obtaining dispensation from HMRC.
- HMRC made Regulation 80 PAYE determinations on the basis that the assignments at each temporary workplace were not under an overarching contract of employment. Instead, each assignment was treated as a separate employment which made the workplaces permanent and denied deductions for travel and subsistence payments.
- The taxpayers Appealed to the FTT, which found that:
- There was no overarching employment contract, and each assignment was a separate employment. The workplaces under each assignment were considered ‘Permanent Workplaces’, making travel and subsistence payments non-deductible.
- Round sum expenses are not deductible without evidence where there is no dispensation agreed with HMRC.
- The loss of tax was brought about Carelessly despite getting legal advice as there was insufficient advice and records and advice was not based on all the facts.
- Mainpay appealed to the UT, on five grounds, that the FTT made errors in law.
The UT found that:
Ground 1: in concluding that the 2013 contract was not an overarching contract of employment.
- There was insufficient Mutuality of obligation to create a single overarching contract. Each assignment represented a separate employment.
- Whilst Mainpay guaranteed to offer the workers a minimum number of hours of work (a minimum of 336 hours of work a year), there was no contractual obligation to pay a worker a minimum fee.
- The workers were only required to 'consider any suitable assignments', there was no obligation to accept the work offered.
Ground 1 was dismissed.
Ground 2: in concluding that successive assignments under the same overarching contract represented single employment.
- The UT stated, "We do not accept that it is inherently surprising or illogical that an umbrella contract may be capable, depending on its terms, of being an overarching employment contract, or an agency contract, or neither."
- The UT agreed with the FTT conclusion that the successive assignments under the same overarching contract represented a single employment.
Ground 2 was dismissed.
Ground 3: in its interpretation of 'regularly attends'.
- The wording which requires construction is “regularly attends in the performance of the duties of the employment” and 'regularly attends' should be interpreted in the context of performing duties for the employment in question, regardless of assignment length.
- The interpretation of 'regularly attends' by the FTT was deemed appropriate.
Ground 3 was dismissed.
Ground 4: in concluding that taxpayers are not permitted to use reasonable estimates of expenditure to calculate deductions.
- In short, there was no automatic entitlement to deduct the amounts reimbursed by Mainpay from the earnings of its employees in the absence of a dispensation. The only amounts that could be deducted were the actual amounts of the expenses incurred.
Ground 4 was dismissed.
Ground 5: in concluding that any loss of tax for 2010/11 and 2011/12 was brought about carelessly by Mainpay.
Ground 5 was dismissed, no reasonable care had been taken.
Useful guides on this topic
Agency Workers: Employment intermediaries rules (subscriber)
What are the tax rules for Employment Intermediaries and Agencies? Are agency workers subject to PAYE?
Agency workers: At a glance
What is the tax treatment of workers supplied through UK-based agencies, employment businesses or other staff supply intermediaries?
Starting Work 5. Agency or Umbrellas
Working via an agency: how to spot whether you are being paid correctly. This guide shows you what to expect.
Travel (employer’s guide)
How do employers apply the tax rules to travel costs? What is available for subsistence costs? What are the rules on home-to-work travel?
Subsistence (employer’s guide)
Subsistence is the tax term for food and drink. What can be claimed? What are the rules for employer intermediaries? How do claims affect VAT, NICs and Income Tax?
Subsistence (employees)
Can employees claim tax relief for subsistence? How do you make a claim?
Client guide: Reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless?
Employment Status: mutuality of obligation
What is mutuality of obligation? Why is mutuality of obligation not considered by HMRC's Check Employment Status for Tax tool?
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