Another umbrella company’s pay model has not survived the hard scrutiny of the tax tribunal. A lack of evidence of sufficient 'mutuality of obligation' during downtimes meant no overarching contract of employment and therefore all worker travel costs were ordinary commuting.


In Exchequer Solutions Limited v HMRC [2024] UKUT 00025, an employment intermediary, a so-called ‘umbrella company’, was unsuccessful in its appeal to the Upper Tribunal (UT). 

  • The company acts as an employer contracting in a labour supply chain with construction sector employment agencies that match individuals to specific construction work assignments with end-user clients.
  • In creating an attractive pay model for itself and its workers, it is essential to demonstrate that its workers were engaged in an overarching contract of employment that also covers the gaps that occur between typical agency working assignments.
  • It then claimed that its workers were carrying out their assignments at temporary workplaces and as such their travel expenses to and from that workplace were tax deductible.
  • As noted this treatment achieves a tax benefit to both employer and employee.

HMRC disagreed with the tax treatment and made Regulation 80 PAYE determinations on the basis that the assignments were separate employments and disallowed Employee-reimbursed travel costs on the basis the travel expenses paid were in respect of ordinary home-to-work commuting expenses.

On appeal to the First Tier Tribunal (FTT):

  • The tribunal found that under the common law for there to be a contract of employment, there needs to be some form of Mutuality of Obligation between the employer and employee.
  • It found that the required mutuality of obligation was missing. Workers were engaged on short-term contracts and there was no link between the contracts. It concluded that there was no overarching contract of employment.

The company appealed to the UT challenging the FTT’s findings and also claiming Regulation 80 determinations were invalid and that reimbursement of expenses were not earnings for National Insurance Contributions (NICs).

The UT found that:

  • The FTT had considered 'strong evidence' that each engagement gave rise to a separate contract of employment between the individual and ESL, and  the FTT directed itself to the right test of contractual interpretation and then applied the test correctly
  • On the facts, the FTT ultimately found there was no work obligation, not even a contingent obligation and no obligation to accept work (not even a contingent obligation).

The UT confirmed that:

  • ESL was unsuccessful in its challenge to those findings. The FTT was correct to hold that there was no overarching contract of employment.
  • The Regulation 80 determination was correctly made and the reimbursement of travel expenses was subject to NICs.
  • The FTT was entirely correct in rejecting ESL’s argument that reimbursement of commuting expenses, although subject to tax, escaped the scope of NICs.

The appeal was dismissed.


We think that the agency Mainpay has a similar appeal case in the queue for the UT. It will be interesting to see what it argues as there is always a fundamental issue with these umbrella contracts: how do you deal with gaps in working patterns which are not a feature of any regular employment contract?

Useful guides on this topic

Agency Workers: Employment intermediaries rules (subscriber)
What are the tax rules for Employment Intermediaries and Agencies? Are agency workers subject to PAYE? 

Agency workers: At a glance
What is the tax treatment of workers supplied through UK-based agencies, employment businesses or other staff supply intermediaries?

Starting Work 5.  Agency or Umbrellas
Working via an agency: how to spot whether you are being paid correctly. This guide shows you what to expect.

Travel (employer’s guide)
How do employers apply the tax rules to travel costs? What is available for subsistence costs? What are the rules on home-to-work travel?

Mutuality of obligation
What is mutuality of obligation? Why is mutuality of obligation not considered by HMRC's Check Employment Status for Tax tool?

Subsistence (employer’s guide)
Subsistence is the tax term for food and drink. What can be claimed? What are the rules for employer intermediaries? How do claims affect VAT, NICs and Income Tax?

External links

Exchequer Solutions Limited v HMRC [2024] UKUT 00025