Latest decision on the Mainpay case – Upper Tribunal dismisses all five grounds of appeal
By Justine Riccomini, Head of Tax (Employment and Devolved Taxes)
19 September 2024
Find out more about the latest decision in the employment taxes case of Mainpay.
Background
Mainpay is an Umbrella Company which engages temporary workers in the health, education and social care sectors, supplying them to employment agencies that it contracts with. The company appealed to the Upper Tribunal (UT) after the First Tier Tribunal (FTT) found in favour of HMRC in relation to payments of travel and subsistence expenses it was making to its workers back in December 2022. The current decision was released on 16 August 2024.
Interestingly, back in 2021, Mainpay also lost its case against HMRC on a VAT matter relating to the supply of consultants and specialist GPs to the NHS, where the organisation was claiming that the supply was exempt.
Considerations under appeal
The FTT found that no overarching employment contract existed, and each assignment was in fact a separate employment. As such, the workplaces under each assignment were considered permanent workplaces, making travel and subsistence payments non-deductible.
Prior to April 2016, Round sum expenses were not tax and NICs-deductible where a P11D dispensation was not already agreed with HMRC and the claims were not backed up by proof of expenditure. (N.B. Nowadays, “approval notices” can be obtained where an employer wishes to pay bespoke rates and can provide a sample of typical levels of expenditure in the business, but if an employer wishes to pay HMRC’s benchmark scale rates, they only need to be able to prove the employee was away on business).
Mainpay’s tax liability was the result of negligent behaviour. Mainpay had taken legal advice but this was not considered to be prudent enough given the advice received did not take into account the full fact pattern and was thus deemed deficient.
Mainpay appealed the FTT’s decision on five grounds of erring in law:
- Ground 1: In concluding that the 2013 contract was not an overarching contract of employment.
- Ground 2: In concluding that successive assignments under the same overarching contract represented single employment.
- Ground 3: In its interpretation of 'regularly attends'.
- Ground 4: In concluding that taxpayers are not permitted to use reasonable estimates of expenditure to calculate deductions.
- Ground 5: In concluding that any loss of tax for 2010/11 and 2011/12 was brought about carelessly by Mainpay.
What issues were being considered by the Upper Tribunal?
The case centred around the same theme as it had done when it was heard by the FTT. Mainpay reimbursed subsistence expenses to the workers it supplied on the basis that all the payments were tax deductible for PAYE and NICs, using benchmark scale rates.
Each worker attended several different assignments and locations to work, and it was therefore important to consider whether:
- Each of the workplaces was temporary (s.339 (3) ITEPA 2003) or permanent (s.339 (1) ITEPA 2003).
- Each worker was engaged on the basis of a single overarching contract of employment under which workers carried out assignments at multiple temporary workplaces (Mainpay claimed it had) and thus enabling Mainpay to pay travel and subsistence expenses at benchmark rates free of income tax and NICs - or whether each employment assignment was instead a discrete employment which in turn made each of the workplaces permanent (HMRC claimed that this was in fact the case), thus prohibiting tax and NICs deductions for travel and subsistence payments.
- The tax loss arose through negligence, which would afford HMRC an extended time limit to make an assessment of the liabilities and pursue collection of them.
Decision
The UT upheld the decision of the FTT and dismissed all five grounds of appeal, confirming that the employees were not entitled to claim an allowable deduction for reimbursed travel or subsistence expenses.
Furthermore, the UT held that each agency assignment represented a separate employment, which in turn meant that every workplace was a permanent workplace for the duration of that assignment.
The UT concluded that it was impossible for there to be one overarching contract of employment because there was insufficient mutuality of obligation. This is because there was no obligation on Mainpay’s part to pay a minimum guaranteed fee, and there was no obligation on the workers’ part to accept a piece of work.
The term “regularly attends” had been interpreted correctly by the FTT, and the deductible amount for expenses could only be the exact amount, not an estimate. No reasonable care had been taken to get the technicalities right and thus, carelessness was deemed to have been present.
As we already know, the payment of travel/subsistence expenses from home to a permanent workplace is not allowable and is treated as ordinary commuting because in general, it would fail the test at s.336 ITEPA 2003 (the expense must be incurred wholly, exclusively and necessarily in the performance of business duties). In addition, where the work is being provided through an intermediary, there is an additional restriction in place courtesy of s.339A ITEPA 2003 with effect from 6 April 2016 – however this case relates to amounts paid out prior to that date.
Conclusion
The key to understanding cases like this one is to strip away the complex veneer of Umbrella Companies and look at the pure facts of the case. What were the employees employed to do? Who was employing them? Where did they travel to and were the employments connected, or separate? Agents who are involved with clients who run these schemes need to ensure that the facts are clear, and not be intimidated by the layers of complexity which lie above the workers carrying out the work. As ever, a back to basics approach helps – and in this case, going back to the intention of the legislative provisions around travel and subsistence was what was required
