Mainpay Ltd v The Commissioners For HMRC

An umbrella company's contract is not an overarching contract of employment unless mutual obligations exist during gaps between assignments. A worker's obligation merely to consider assignments, without a guaranteed payment or equivalent retainer, does not supply the necessary obligation to work.

Where an umbrella arrangement is only a framework for separate contracts of service, each assignment is a separate employment. For Income Tax (Earnings and Pensions) Act 2003 purposes, attendance is regular when it is required to perform the duties of that particular employment, however short it lasts. Benchmark subsistence rates do not create an automatic deduction without a dispensation; only expenditure actually incurred is deductible.

For the extended assessment period, HMRC must prove a connection between carelessness and the tax loss, but need not prove the taxpayer's precise counterfactual response to competent advice.

Mainpay Ltd, an umbrella company supplying temporary workers through employment agencies, reimbursed workers' subsistence expenses by default using round-sum or benchmark scale rates. It treated the reimbursements as deductible for income tax and national insurance purposes.

The First-tier Tribunal dismissed Mainpay's appeal against PAYE determinations and NIC decisions released on 21 December 2022. It held that the contracts did not create an overarching employment between assignments, that each assignment was a separate employment, that the workplaces were permanent workplaces, and that the scale-rate claims were ineffective without a dispensation. It also upheld the extended time limit for the earlier assessments on the basis of carelessness.

Mainpay appealed on those issues, including the construction of its 2013 employment agreement, the meaning of regular attendance, the use of estimates, and causation under the extended time-limit provisions.

1. Appeal dismissed. The First-tier Tribunal made no error of law in holding that the 2013 Contract was not an overarching contract of employment. Mutuality sufficient to locate a contract in the employment field must exist during gaps between assignments. Mainpay's obligation to offer work did not correspond with an obligation to pay a guaranteed retainer if work was unavailable. The worker's obligation merely to consider suitable assignments did not impose an obligation to accept work or to consider it in good faith.

2. The principle concerning rational exercise of contractual discretions is context-specific. It did not imply a good-faith obligation on workers that would create the required mutuality. The tribunal therefore did not need to decide whether control also had to exist in the gaps.

3. Absent an overarching employment contract, the contracts were properly construed as framework agreements under which a separate contract of service, and thus a separate employment, arose for each assignment. Section 4 of the Income Tax (Earnings and Pensions) Act 2003 did not support a separate concept of one employment spanning multiple contracts of service.

4. Assuming that section 339(2) requires both regular attendance and a workplace which is not temporary, a worker regularly attends a workplace where attendance occurs as required to perform the duties of the particular employment. That is so even if the employment lasts only one day. The tribunal therefore did not decide whether the legislation permits a third category of workplace which is neither temporary nor permanent.

5. Although unnecessary to the result, Mainpay could not automatically deduct benchmark or round-sum reimbursements without a section 65 dispensation. The deductible amount was expenditure actually incurred, not an estimate chosen by the employer.

6. For section 36 of the Taxes Management Act 1970, HMRC bore the burden of proving that a failure to take reasonable care failed to avoid the tax loss. It had to show what the taxpayer should have done differently, but did not have to prove the precise counterfactual action or advice outcome. Mainpay had not obtained appropriately informed tax advice on whether its 2010 Contract achieved the tax purpose on which its claims depended. That failure was sufficiently connected with the loss, so the six-year time limit applied.

• Upper Tribunal (Tax and Chancery Chamber): Appeal dismissed in [2024] UKUT 233 (TCC).
• First-tier Tribunal (Tax Chamber): Mainpay's appeal against the PAYE determinations and NIC decisions was dismissed by a decision released on 21 December 2022.