The Commissioners for HMRC v Payroll & Pension Services (PPS Umbrella Company) Ltd

A winding-up order should not be made where the alleged debt is disputed in good faith on substantial grounds. The petitioner bears the burden of showing that no bona fide dispute exists. Where employment status depends on a contract, the court must consider mutuality of obligations, control and the contract as a whole in its factual matrix. An unambiguous contract may be displaced only by legally sufficient evidence, including evidence capable of establishing a sham. Statutory deeming provisions may transfer liability for employer’s National Insurance contributions, but the relevant assessment and each substantive statutory condition must be established. The Companies Court may refuse a winding-up order where doing so would deprive a company of a proper opportunity to challenge the assessment.

HMRC presented a petition to wind up Payroll & Pension Services (PPS Umbrella Company) Ltd for alleged unpaid employer’s National Insurance contributions of approximately £7.3 million. HMRC alleged that workers described as self-employed were in fact employed by the company. It relied alternatively on statutory provisions said to deem the company liable for the contributions.

The company’s director applied to dismiss the petition and discharge the provisional liquidators. The court declined to determine the application concerning the provisional liquidators because it decided the petition finally. The central issues were whether HMRC had established that the debt was undisputed and whether the company could be liable under the statutory fraud exception.

1. Primary case. The Companies Court should not ordinarily wind up a company on an alleged debt disputed in good faith on substantial grounds. HMRC bore the burden of proving that no bona fide dispute existed.
2. The specimen worker contract, taken at face value, was not an employment contract. It provided for payroll services by the company to the worker, payment of a fee by the worker, and no control by the company over services provided to NHS Trusts. The heading “Contract of Service” could not alter that conclusion. The factual matrix included agency contracts and representations, but HMRC faced an uphill struggle in using that material to override unambiguous contractual wording.
3. The evidence disclosed a prima facie fraud involving the company, but did not establish whether the company employed the workers under a sham contract or instead made false representations while the workers remained self-employed. A final conclusion would require further factual investigation and potentially cross-examination. HMRC therefore failed to show that there was no bona fide dispute.
4. Assessment and statutory deeming provisions. The court did not need finally to determine the effect of Social Security Administration Act 1992 s 117A because basic justice required that the director have a proper opportunity to challenge HMRC’s decision notice. The court exercised its discretion under s 122(1) of the Insolvency Act 1986 not to wind up the company.
5. HMRC’s alternative case was considered under the Social Security (Categorisation of Earners) Regulations 1978, reg 5 and the Schedules. Even if the statutory conditions deemed the agencies to be employers, HMRC also had to establish the fraud exception before the company could become liable in substitution. The decision notice assessed the company as actual employer, not as a deemed employer under that exception. HMRC therefore had not established the necessary assessment.
6. The fraud exception required HMRC to show that the agencies had been defrauded by the company’s representations. The evidence did not resolve that issue. Permission to amend the petition or adjourn it for further evidence was refused because the proposed case involved a fundamental change and HMRC had had ample time to formulate it.
7. The petition was dismissed. The court accepted the company’s undertaking restricting transactions and requiring information to be provided to HMRC. The parties were to address the form of order.

The judgment was a first-instance decision. It records that provisional liquidators were appointed by a deputy judge on 9 November 2023 after an adjourned hearing of HMRC’s application. No appellate decision concerning the petition is stated.