Stormy weather ahead for umbrella companies after landmark legal ruling

Restructuring and Insolvency

A recent legal decision could have serious tax ramifications for umbrella companies. Chester-based Exchequer Solutions, a leading business in the umbrella company market, lost an Upper Tier Tribunal case against HMRC on 24th January 2024 over its treatment of expenses for the contractors it employed.

Umbrella companies perform a valuable service in the temporary recruitment market – employing contractors and enabling them to work flexibly for agencies on temporary assignments.  They act as a conduit between agencies and the contractors and manage the day-to-day administration, which is why they are popular with both parties.

The legal case centres around the employment status of the contractors, and whether the different assignments were deemed as “fixed” or “temporary” workplaces.  

Exchequer, like other reputable umbrella companies, had treated the assignments as temporary workplaces – which meant that the contractors could claim certain travel and subsistence expenses, and these were not subject to PAYE and NIC.  If the assignments are treated as fixed, then contractors cannot claim those expenses.

It is this point that went in HMRC’s favour – based on the ruling, Exchequer would be liable for the tax on those expenses.

Andrew Bayley, Restructuring and Insolvency Director at Leonard Curtis and recruitment sector lead, commented “This landmark ruling will be a major blow for umbrella companies.  We know there are a number of similar businesses with open enquiries with HMRC, that were hoping for a more positive outcome.

“We don’t yet know whether the decision will be challenged – but if this ruling sets a precedent that the umbrella company is indeed liable for the tax on those expenses, then there could be some significant liabilities on the table that those companies may struggle to repay.”

The team at Leonard Curtis has significant experience of assisting businesses in this sector, so if you advise any umbrella companies who are concerned about this potential exposure, then please talk to us.  An early conversation increases the options available and helps ensure management remain in control.

Get in touch with Andrew Bayley on 0161 831 999 or


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