A recent ruling has established that temporary worker arrangements do not constitute a single, continuous employment relationship in which workers retain the unfettered right to refuse assignments. This effectively confirms the prerequisite for a mutuality of obligation when accruing tax breaks.

Mainpay engaged temporary workers in the service sector, contending that its employment relationship constituted a single, albeit discontinuous form of employment, effectively rendering its various workplaces transient. Based on this viewpoint, Mainpay reimbursed its workers for travel and subsistence expenses and deducted these amounts from their income for tax purposes. Mainpay also used rounded sums, or benchmark scales, for subsistence expenses without obtaining formal dispensation from HMRC.

HMRC argued that each assignment was a separate instance of employment, making each workplace permanent for the purpose of a given assignment. This meant that travel and subsistence expenses were likely non-deductible without dispensation.

As the two contracts in question (2010 & 2013) were issued more than four years after the relevant tax year, this required HMRC to prove that the loss of tax was "brought about carelessly" by Mainpay so as to justify a six-year extended time limit. The Tribunal ruled in their favour, finding that neither the 2010 nor the 2013 contract constituted overarching contracts of employment, as the workers retained the unfettered right to refuse assignments. This, in turn, meant they lacked the necessary mutuality of obligation in the gaps between assignments. The Tribunal held that each assignment was an instance of separate employment and that the workplaces were therefore, in effect, permanent, making the expenses non-deductible. The Tribunal also found that Mainpay was "careless" in claiming the deductions, particularly in relation to the 2010 contract, because it had relied on vague assurances from employment lawyers.

This contention was escalated to the Court of Appeal, which rejected Mainpay’s argument that the parties’ intention should be decisive in construing the contract, as what essentially mattered was the reality of the arrangement, which was one of intermittent employment. Thus, each assignment was effectively under a separate contract of employment for the purposes of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and, therefore, created a permanent workplace. The Court further upheld the finding that the loss of tax was "brought about carelessly" by Mainpay, validating the extended assessment time limit permitted under the Taxes Management Act 1970 (TMA).  

The case provides a clear distinction between a general agreement that governs future work and an actual contract of employment that lays out the terms under which future, separate contracts of employment will be formed. This type of agreement alone does not create a state of continuous employment. Companies are thus advised to seek advice when creating discontinuous employment frameworks in an effort to minimise tax liabilities.