A tax tribunal has concluded that an umbrella company has a potential £11m liability due to their overarching contract not being one of employment. The case concerns Exchequer Solutions Limited which operates primarily in the construction industry. The tribunal focuses on tax deductible travel and subsistence expenses that were paid to their umbrella workers in 4 tax years: 2013/14, 2014/15, 2015/16 and 2016/17 inclusive.
The overarching contract of employment is important because, in order to allow tax deductible travel and subsistence expenses, the workers would need to be going to a temporary workplace. In order to be travelling to a temporary workplace, the individual needs to be an employee, hence the overarching contract.
However, the tribunal concludes that there is insufficient mutuality of obligations and insufficient control for the relationship to be employment. Therefore the overarching contract of employment was considered not actually be employment. And because they were not actually employed, it follows that the workers were not travelling to temporary workplaces (instead it was a series of short-term workplaces), so the tax relief on the expenses was not due. Instead the reimbursement of these expenses should have been treated as taxable income.
Although the amount of expenses in relation to each umbrella worker was relatively small, the umbrella engaged thousands of workers which cumulatively result in the £11m liability. A deadline of 30 November 2022 was set for agreement to be reached at which time a hearing would be organised to finalise the amount of any liabilities. Exchequer Solutions Limited has confirmed that it will be appealing the decision.
This type of operation where umbrellas provided tax deductible travel and subsistence expenses to their workers was legitimate and fairly standard during the tax years in question. At this stage, contractors appear to be unaffected. Due to changes in legislation in 2016, only a tiny proportion of umbrella workers will currently be eligible for tax deductible expenses and it is likely that you would know if this applies to you. If you aren’t sure, check your payslips for anything that isn’t taxable pay and ask your umbrella if you see anything unexpected in your pay.
