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Tribunal rules in favour of HMRC as it pursues umbrella company for £11m in unpaid tax

Umbrella firm Exchequer Solutions said it plans to appeal against the outcome of a First-Tier Tribunal, which claims it owes in excess of £11m in unpaid tax relating to its handling of contractor expenses

The umbrella company community is facing renewed scrutiny over how some of its members operate, in the wake of news that one provider has been found to owe more than £11m in unpaid tax to HM Revenue & Customs (HMRC).

A First-Tier Tribunal has ruled that Exchequer Solutions, a Chester-based umbrella company, owes “in excess of £11m” in National Insurance Contributions (NICs) and income tax to HMRC, due to the way it treated for tax the expenses paid out to its contractors.

As detailed in the write-up of the Tribunal’s decision, this case hinged on how the employment contracts between Exchequer Solutions and its contractors were conducted, in terms of whether they were employed by the company on a continuous basis or not.

“The key issue in this is whether [the company] employs the relevant individuals on a continuous basis under an overarching or umbrella contract of employment which covers all of their various assignments undertaken by a particular employee through [Exchequer Solutions] and includes any gaps between those assignments … or whether there is a series of separate contracts of employment in respect of each individual assignment,” the decision document stated.

“The importance of the distinction lies in the entitlement of the employees to be reimbursed for travel and subsistence expenses without that reimbursement being subject to tax or National Insurance Contributions (NICs).”

On this point, in instances where there exists an overarching contract of employment between the umbrella company and the contractor, each place of work they attend is classified as being a temporary workplace and expenses can be paid out on a tax-free basis.

Conversely, if each assignment the contractor takes on has its own contract in place, where they work is considered to be their “permanent workplace” and so any expenses they receive must be taxed accordingly. “Having carried out investigations, HMRC’s conclusion in this case is that there is no overarching contract of employment so that the payments relating to expenses are subject to income tax and under the [Pay-As-You-Earn] system and to NIC,” the case document continued.

Subsistence expenses

Furthermore, if the company had engaged contractors on an overarching contract basis, PAYE and NIC would still be applied, because the company paid out subsistence expenses based on HMRC’s benchmark scale rates, which it was not entitled to do.

As a result, the Tribunal was told that Exchequer Solutions owes “in excess of £11m” in unpaid PAYE and NICs, covering the 2013/14 to 2016/17 tax years, inclusively.

“Although the amount of expenses in relation to each employee is relatively small, [the company] had many thousands of employees during the relevant period,” the document added.

According to Exchequer Solutions’ most recent set of financial records, which were filed in December 2021 and cover the 12 months to 31 December 2020, the company had 1,358 contractors on its books during this period and made a loss of £372,031.

The Tribunal judge backed HMRC’s assertions about Exchequer Solutions and its contractual arrangements, before ordering both parties to go away and agree how much tax the company should pay.

“If no agreement is possible, each party should provide their own proposed directions, highlighting any areas of difference. Either party may, of course, apply for an extension of time for compliance with this direction if it considers that an agreement on the amount of any liabilities can be achieved without the need for a further hearing,” the document stated.


In a statement to Computer Weekly, Mike Lowndes, managing director of Exchequer Solutions, confirmed the company would be appealing against the outcome of the tribunal, and described HMRC’s pursuit of the matter as “an attack” on the entire umbrella industry.

“We operate in a technically complex industry and have continually sought financial advice from the UK’s leading tax advisers,” he said. “There is no statutory definition of an overarching contract so this matter is a technical argument on employment law and tax.

“We feel that HMRC’s approach to this matter is an attack on the umbrella industry as a whole and would like to extend our support to our peers within the industry,” said Lowndes. “While we are extremely disappointed by the ruling, we will be appealing the outcome and would like to thank our dedicated team, clients and partners for their continued support.”

The company is an accredited member of the Freelance and Contractor Services Association (FCSA), which is an industry body that provides accreditation to compliant umbrella firms.

In a statement to Computer Weekly, FCSA CEO Chris Bryce said the Association has been in discussion with Exchequer Solutions since details about the outcome of its First Tier Tribunal first emerged, and said it will decide in due course what action – if any – to take against the firm.

According to the company’s FCSA umbrella company directory listing, its accreditation is up for renewal at the end of June 2022.

“The [Tribunal] seems to have focused on the nature of the employment contract,” it said. “Our understanding is that Exchequer’s professional advisors have indicated that an appeal is likely. Exchequer became FCSA members in May 2020, well after the tax years in question in this case. We will continue our dialogue with Exchequer and our own advisors prior to making any further announcement.”

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Dave Chaplin, CEO of IR35 compliance consultancy Contractor Calculator, said the case raises questions about the FCSA’s vetting procedures.

“It’s not gone unnoticed that the umbrella company has an accreditation by the FCSA, which states that ‘FCSA members are fully compliant with tax and employment laws’,” he said. “It appears this may not be a true statement and it may be prudent for them to review their claimed ‘gold standard’.”

Additionally, Crawford Temple, CEO of fellow payment intermediary compliance assessor Professional Passport, said the case itself highlights the need for closer collaboration between HMRC and umbrella compliance accreditation bodies.

“It’s disappointing to learn that another umbrella provider has been found to be operating outside the acceptable rules, and each time we hear about such stories the whole industry and supply chain takes another knock,” said Temple.

“This latest case serves to highlight why HMRC needs to work more closely with compliance bodies and the wider sector to ensure that standards are reached, raised and maintained across the whole supply chain.”

Temple said the case also demonstrates just how complicated it can be for umbrella companies to operate compliantly, as the legislative landscape is subject to so much change.   

“The ruling highlights that Exchequer Solutions was using benchmark rates without a dispensation,” he said. “The change to the rules in 2016 saw the removal of dispensations for the umbrella market to receipted rates, and HMRC would challenge that, as this case shows. Professional Passport does not allow any of its providers to operate benchmark rate expenses and they only operate receipted expenses.”

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