In a landmark decision, the Court of Appeal in Mainpay Limited v HMRC [2025] EWCA Civ 1290 has clarified the tax treatment of travel and subsistence expenses reimbursed to temporary workers engaged via umbrella companies.
What happened?
Mainpay, an umbrella company, reimbursed its workers for subsistence costs using HMRC’s benchmark scale rates. It argued that each assignment location was a temporary workplace under Sections 338 and 339 ITEPA 2003, and that the workers were employed under overarching contracts, thereby qualifying for tax relief on travel and subsistence.
However, HMRC challenged this, asserting that the workplaces were permanent and that the contracts did not meet the criteria for overarching employment. The Court upheld HMRC’s position, finding that the contracts lacked mutuality of obligation between assignments and did not constitute continuous employment. Consequently, the workplaces were deemed permanent, and the expenses were not deductible.
Court finding
Crucially, the Court reaffirmed that benchmark scale rates can only be used where a formal agreement exists with HMRC. Without such an agreement, employers must retain evidence of actual costs incurred.
This decision reinforces the importance of correctly classifying workplaces and employment contracts when applying travel and subsistence reliefs. Employers using umbrella models must ensure contracts genuinely reflect overarching employment and that appropriate agreements with HMRC are in place before applying scale rates.
A warning for Umbrella Companies and Agencies
The ruling serves as a cautionary tale for umbrella companies and agencies, highlighting the risks of misapplying tax reliefs and the need for robust compliance with HMRC guidance and statutory provisions.
For further information please contact Nick Bustin, Employment Tax Director, or a member of the Employment taxes Team.
