Umbrella Company Expenses Ruling Challenged at Upper Tribunal

Umbrella companies across the UK will be taking note of an Upper Tribunal (UT) ruling which focused on tax-deductible expenses.

An umbrella company that serviced clients in the construction industry appealed a First-tier Tribunal (FTT) decision, the FTT having found that reimbursed employee expenses were not deductible for the purposes of Income Tax and National Insurance Contributions (NICs). At the crux of the matter was the question of whether or not an 'overarching contract of employment' existed between the umbrella company and those it employed on construction assignments.

The company contracted with construction sector employment agencies, taking on the role of employer of the individuals undertaking assignments. It was agreed by both parties in the dispute that the company was the employer of those individuals during the period of the construction assignment.

What was contested, however, was whether an overarching contract of employment, which also covered the gaps in between the assignments, existed. That issue affected the company's ability to deduct travel reimbursement expense payments.

If such an overarching employment contract existed, the different assignment locations would be classed as temporary work locations, with the result that the company was not liable to PAYE and NICs on its reimbursement of travel from the employee's home to their place of work.

On the other hand, if the company was held to be the employer only during the period[s] of assignment, each place of work would be classed as permanent in respect of each separate assignment. In that case the reimbursement of travel expenses would be disallowed because the expenses were ordinary home-to-work commuting expenses.

The FTT agreed with HM Revenue and Customs that there was no overarching contract of employment and hence the expenses could not be deducted. When this decision was challenged, the UT found that the FTT had been entirely correct in reaching its ruling. The company's appeal was dismissed.