In Mainpay Ltd v HMRC [2025] EWCA Civ 1290, the Court of Appeal (CoA) found that an umbrella company did not have overarching employment contracts with its workers. This meant that reimbursed travel and subsistence expenses could not be paid tax-free.
Mainpay Limited (Mainpay), an Umbrella company, 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 they carried out assignments at multiple temporary workplaces, such that:
- Reimbursed 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 each workplace permanent and denied deductions for travel and subsistence payments.
- Mainpay Appealed to the First Tier Tribunal (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 the advice was not based on all the facts.
- Mainpay Appealed to the Upper Tribunal (UT), which found that:
- The 2013 contract was not an overarching employment contract due to insufficient Mutuality of obligation. Each assignment was treated as a separate employment.
- The UT agreed with the FTT's conclusion that the successive assignments under the same overarching contract represented a single employment.
- The phrase 'regularly attends' was correctly interpreted by the FTT to mean attendance during duties, regardless of assignment length.
- 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.
- Mainpay had not taken reasonable care.
- The UT upheld the FTT decision and dismissed the appeal.
Mainpay appealed to the Court of Appeal (CoA) on the basis that the FTT and UT made errors in law on three grounds:
- Ground 1: In applying the wrong test to decide whether two discontinuous periods of work are part of the same employment or are separate employments. The CoA found that:
- Mainpay's argument that a single contract governing multiple assignments created a single employment for tax purposes should be rejected.
- The employment only existed during active assignments.
- Each assignment represented a separate period of employment, with no employment relationship in the gaps.
- The Tribunals were correct in treating these as successive, not continuous, employments.
- Ground 2: In deciding that when an employee incurs some expenditure, the employer may not use a reasonable estimate of that expenditure in calculating the appropriate deduction for tax purposes. The CoA:
- Did not express a detailed view on this ground, as it was contingent on the outcome of the first ground, which was dismissed.
- Upheld the FTT and UT's findings that Mainpay could not rely on benchmark subsistence rates without a formal dispensation from HMRC.
- Found that Mainpay's system allowed automatic claims without requiring receipts or confirmation that expenses had been incurred. This undermined the legitimacy of the deductions and supported HMRC's position.
- Ground 3: In using the wrong test to decide whether Mainpay's carelessness brought about a loss of tax. The CoA found that:
- HMRC must prove not only that the taxpayer acted carelessly, but also that this carelessness caused the loss of tax.
- The FTT had correctly applied a causal test.
- Mainpay's failure to take reasonable care, particularly in not seeking appropriate tax advice, led directly to the loss of tax.
- HMRC did not need to prove a detailed counterfactual (i.e. exactly what would have happened if proper advice had been taken). It was sufficient to show that the carelessness contributed to the tax loss.
- Mainpay had relied on vague assurances from employment lawyers, who were not tax specialists, and had failed to consult its tax adviser about the contract's implications. This was deemed unreasonable.
The CoA dismissed all three grounds of appeal.
Useful guides on this topic
Agency workers: Umbrellas & anti-avoidance PAYE rules
What is an umbrella company? Who is responsible for operating PAYE in labour supply chains? What is the new legislation for umbrella companies? How will this affect existing labour supply chains?
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)
What subsistence costs can be claimed? What are the rules for employer intermediaries? How do claims affect VAT, National Insurance Contributions (NICs) and Income Tax?
Subsistence (summary for 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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