Exchequer case throws doubt on overarching contracts

22 June 2022


A recently published First Tier Tribunal case; Exchequer Solutions Limited v The Commissioners for Her Majesty’s Revenue and Customs, appears to throw the long-accepted use of an umbrella company overarching contract up into the air. 

The case questions whether employees of Exchequer qualified for tax relief on travel expenses paid to them on the premise that they were travelling for necessary attendance at a temporary workplace.

Employees of Exchequer were paid when working but went unpaid during periods between assignments.  They were paid expenses without deduction of tax and National Insurance Contributions (“NIC”) on the basis that an overarching contract of employment was in place and so, attendance at each workplace could be interpreted as attendance at a temporary workplace, with the expectation to move on to other work sites under the same contract.   

HMRC held that the contract between each worker and Exchequer did not create mutuality of obligation during the periods between assignments and so, each separate assignment fell to be regarded as a separate employment.  That being the case, the payments of expenses should have been subject to deduction for tax and NIC.    

The judge decided that, for mutuality of obligation to exist in relation to an overarching contract of employment, the following factors must apply;

  • There must be ongoing obligations on the part of both the employer and the employee throughout the whole of the duration of the contract, including any period when the employee is not working;
  • There must be an obligation on the employer to provide some work or to pay a retainer or provide some other meaningful benefit whilst the employee is not working.  There is however no requirement for the employer to guarantee a minimum level of work;
  • The employee must be under an obligation to accept at least some of the work offered although they may be free to turn down work for any reason. 

In considering this case, the judge held that whilst there was no question that Exchequer was the employer of the individuals during periods when they were working, the contract did not create mutuality of obligation during periods between assignments because;

  • The contract did not impose any obligation on Exchequer to provide work;
  • The contract did not oblige Exchequer to pay the individuals or provide them with any other valuable benefit whilst they were not working; and
  • The contract did not oblige the individual to accept an engagement if one was to be offered.

The outcome is that, unless they appeal the decision further, Exchequer face a liability of £11m for unpaid tax and NIC in respect of expense payments from 2013/14 to 2016/17 inclusive. 

Aspire Comment

Whilst this case is the subject of a First Tier Tribunal and so, not legally binding, it presents a worrying contradiction to the historic understanding of the use of overarching contracts.  Mention of the guarantee of 336 hours work is notable by its absence. 

Any company which continues to pay expenses to employees on the basis that they are attending a temporary workplace should review and reconsider their expense process to ensure that they are aware of potential risks.

With the spectre of the awaited Supreme Court decision on the Harpur v Brazel case on holiday pay and this outcome, a separate contract for each assignment may be gaining appeal. 

Call us on 0121 445 6178 or email enquire@aspirepartnership.co.uk if you would like to discuss.