Exchequer Solutions Limited (ESL) is an umbrella organization working as an intermediary between construction workers and building project owners, employed on a contract basis.The prime problem in this trial at the First Tier Tribunal is if the contractors hired by ESL are employed repeatedly under an overarching or umbrella contract of employment which encompasses a variety of projects taken up by a specific worker through ESL and incorporates any free time during those projects (including durations where the employee may be working for another client), or if there is a chain of different contracts of employment for each different project.
The significance of the difference is highlighted in the entitlement of the workers to be repaid for travel and subsistence costs without tax being applied to that amount or national insurance contributions (NIC).In case the contract of employment is overarching, this would mean that every area of work is an interim workplace and the reimbursement of costs can be done without having tax be applicable. Although, if different jobs come with different contracts that means the workplace is permanent and any compensation for the expenses is subject to taxes and NIC is applicable.Following inquiries, HMRC stated that in fact there wasn’t an overarching contract of employment in place hence the reimbursements pertaining to the expenditures were eligible for income tax and NIC.The years in question were 2013-14 through to 2016-17 and HMRC released determinations totaling £11m due in taxes and NICs.Even though the total expenditure pertaining to each worker was comparatively little, ESL had over thousands of workers on its payroll, leading to a multi-million pound liability.ESL pleaded to review the Regulation 80 Determinations and the NIC Notice of Decision.
It said that its workers were under an overarching or umbrella contract and that every project workplace was temporary.Going through extensive explanations by the HMRC and ESL over the fact that if mutuality of obligation was met or not, producing a sole contract for every employee, despite their project and project’s location, the Tribunal was not convinced of ESL’s justifications.The judge stated: ‘I am not convinced that, based on the agreement between ESL and its employees, understood in light of the points and situations known to the parties, there was enough mutuality of obligation to convey that the agreement was for employment.‘Correctly understood, ESL has no continued responsibility to provide work or perks and the workers have no responsibility to carry out any tasks for ESL.‘Based on this, the key prerequisite of a continuous contract isn’t present and therefore, regardless of the right ESL might have had over the workers in the duration between projects, the agreement cannot be deemed as a contract of employment.’The agreement present between ESL and the workers does not, on ongoing terms, meet the minimum conditions for a contract of employment. Mutuality of obligation isn't present and not enough control is available to ESL either.
Hence the contract is in fact not a contract of employment. Alternatively, a new agreement is created every time a worker is assigned a project by ESL, and ESL presents itself as the employer pertaining to that project.The ruling indicated that the travel expenditure in each situation pertains to a permanent workplace instead of a temporary one and is hence subject to tax.‘I have little confusion in ruling that the reimbursement pertaining to travel costs depicting a usual cost of arriving at a permanent workplace do constitute salaries for NIC reasons (and surely for income tax reasons),’ stated the Tribunal.
‘Even though the cost is the repayment of expenditures, it is paid from the profits gained through the employment as the costs weren’t incurred in completing the worker’s duties.’Therefore, to conclude, the Tribunal decided that ESL and HMRC, both, should come to terms that the total liability to income tax and NIC depends on the travel cost paid by ESL to its workers.due date of 30 November 2022 was decided to come to terms on which date a hearing would be held to conclude the total cost of the liabilities.Dave Chaplin, CEO of ContractorCalculator stated: ‘This conflict is based on the concept of mutuality of obligation, which was lately made clear by the Court of Appeal in both HMRC v PGMOL, and HMRC v Atholl House.
‘Without there being enough work related’ duties in the off times between projects, the overarching umbrella agreement cannot qualify for employment. Alternatively, each project is a different employment.‘The effect of this is that the umbrella organization was not correct to permit tax deductible costs for the workers and the salary was alternatively earnings, and tax should have been paid.’
