UT/2023/000049 - [2024] UKUT 00233 (TCC)

While Mr Firth deserves credit for his ingenuity and tenacity in devising and pursuing this argument, to a large extent his submissions were made to and properly dealt with by the FTT.

As a preliminary observation, we agree with Ms Choudhury’s statement in HMRC’s skeleton argument, as follows:

Put another way, we do not accept that it is inherently surprising or illogical that an umbrella contract may be capable, depending on its terms, of being an overarching employment contract, or an agency contract, or neither. Nor is it surprising or illogical that the applicable categorisation could bring with it different tax and employment law consequences.

We consider that the FTT made no error of law in determining this issue, for the following reasons.

First, while the absence of any authority supporting Mr Firth’s analysis does not mean it must be wrong, it would nevertheless be surprising if it was correct, or arguably correct, but had not been the subject of argument in any of the numerous decisions (up to and including PGMOL) relating to contracts argued by one party or another to be overarching contracts.

Second, as the FTT noted at FTT[146], it appears that the only authority which does deal with the argument, albeit in a somewhat elliptical fashion, is Reed, in which the argument was rejected. At [321]-[323] of Reed, the Upper Tribunal said this:

Third, the definition of “employment” in section 4 ITEPA, while not exclusive (“includes in particular”) focusses on particular types of contract, in this case a “contract of service”, and we agree with the FTT (at FTT[148]) that section 4 provides no support for the suggestion that a single employment may encompass more than one contract of service. In agreement with the FTT, we consider that the more natural reading of section 4 in relation to an umbrella contract such as the Contracts is that a contract of service could arise either under the contract itself, if it were an overarching contract of employment, or under separate contracts of service arising pursuant to the umbrella contract. It is not evident that the definition encompasses Mr Firth’s suggestion of a contract which gives rise to a single employment but is not itself an overarching contract of service.

Fourth, we reject Mr Firth’s assertion that the “natural” analysis of the Contracts is that they give rise to a single continuous employment, and the FTT’s and HMRC’s contrary analysis is “artificial”. The FTT correctly stated, at FTT[144]:

In relation to the Contracts, we consider that the FTT was entitled to reach the conclusion, for the reasons which it gave, that each contract was properly construed (as HMRC suggested) as a framework agreement which provided the basis on which consecutive contracts of service for individual assignments could arise.

Fifth, we do not agree with Mr Firth’s suggestion that it is somehow anomalous or unfair that Mainpay is in a worse position than if the Contracts had fallen within the definition of an “agency contract”. ITEPA provides a specific regime for certain agency contracts, and deems them to be employment contracts. That does not support Mr Firth’s submission.

Sixth, the authorities make it clear that it is perfectly possible to have a succession of short employments, so the position in relation to the issue of a P45 in relation to individual assignments is simply a function of the distinction between a contract of service and a contract for services.

Finally, we do not accept Mr Firth’s submission that it is not possible to discern any legislative purpose in distinguishing between the Contracts and an overarching employment contract. Nor do we accept his assertion that “the critical point which HMRC are still unable to explain…is why each assignment (which may be on different terms as to pay, duration, location) is part of the same employment if there happens to be mutuality in the gaps between employment, but not if there is not mutuality in the gaps” (Footnote: ⁴). The short answer is that, as we have set out above, that is what the law says, and, in our view, a dividing line which takes into account the presence or absence of mutuality in the gaps between assignments when considering an umbrella contract is entirely logical; it is the status of the contract during those gaps which determines whether there is a single overarching contract of employment.

The FTT reached the right conclusion on this issue and the appeal under Ground 2 is dismissed.