David Yates KC and Sadiya Choudhury KC take a look a some of the latest employment tax cases and recent changes to employment tax legislation.
Umbrella companies
2:01 Mainpay: Mainpay was an umbrella company providing the services of various employees whose assignments were sourced by an employment agency. The employment point in the case was the nature of the “overarching contract” between Mainpay and the workers, and specifically whether this allowed Mainpay to reimburse travel and subsidence expenses without accounting for income tax and NIC. Consideration of the Readymix Concrete test. Could you argue a “single discontinuous working employment relationship”? Legislation has now made arguing for overarching contracts very difficult (s339A ITPA). Other aspects of this case are discussed in the most recent Tax Litigation Update podcast.
9:20 PPS Umbrella and VAT mini-umbrella fraud category: Elphysic being the lead case which is heading for the Supreme Court. However new legislation is coming in April 2026 which makes umbrella companies jointly and severally liable for NICs. The government is also reviewing the operation of umbrella companies more widely.
SARS
10:39 Saunders: stock appreciation rights (SARS) under a long term incentive plan. NB this case is currently on appeal. When an employee is promised something (like a contractual right) – is it the contractual right which is their earnings or is it the payment made later under it? Does Abbott v Philbin still hold good? Do SARS have a value in their own right? Does the employee derive realistic immediate value?
IR35 legislation
21:51 Bryan Robson Ltd: payments for acting as an ambassador for Manchester United. Was it an employment contract under the hypothetical employment test? Whether all or part of the consideration was attributable to the contract allowing exploitation of image rights and, if so, was this outside IR35? Case is on its way to the UT.
27:50 New offset mechanism in the tax legislation to allow payments to be offset against PAYE liabilities. Will this mean a decrease in IR35 cases?
Payments in lieu of notice
28:53 Rawlinson: was the payment in lieu of notice (PILON) (the employee was disabled due to cancer surgery) subject to income tax as earnings? Guidance on operation of the exception of s401/406 ITPA. Absence of express language as to the purpose of a PILON not necessarily fatal but leads to tax uncertainty.
Salary sacrifice schemes
35:43 Best Connection: the company set up a travel payment scheme (BSS) linked to a salary sacrifice scheme.
38:20 Salary sacrifice legislation under ITPA: the new rules mean that salary sacrifice schemes are now brought within the benefits legislation with some exceptions (eg electric cars, pensions, bicycles). However, contributions about £2k will be subject to NICs from April 2029. Whilst Best Connection predates all this legislation, it is still helpful on whether something is actually a salary sacrifice scheme. There is draft legislation – National Insurance Contributions Employer Pensions Contributions Bill – and further guidance promised.
Agency workers legislation
41:14 Tyler Security: were the dog handling services providing “personal services”? The supervision, direction and control “SDC” test.
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Case citations and legislation
Legislation
ss 338 and 339A Income Tax (Earnings & Pensions) Act 2003 (ITEPA)
s16 ITEPA
Chapter 5, part 7 ITEPA
ss49 – 61 ITEPA (IR 35)
Schedule 1AB ITEPA
s62 ITEPA
s406 ITEPA
s65 ITEPA
s69A and 69B ITEPA
National Insurance Contributions (Employer Pensions Contributions Bill
ss44 – 47 ITEPA
Chapters 7 and 10 Part 2 ITEPA
Cases
Mainpay Ltd v HMRC [2025] EWCA Civ 1290
Exchequer Solutions Ltd v HMRC [2024] UKUT 25 (TCC)
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497
HMRC v Payroll & Pension Services (PPS Umbrella Company) Ltd [2024] EWCA Civ 995
Elphysic Ltd v HMRC [2025] UKUT 236 (TCC)
Saunders v HMRC [2025] UKUT 374 (TCC)
Abbott v Philbin [1961] AC 352
Bridges v Hewitt [1957] 1 WLR 674 (also known as Bridges v Bearsley)
Bryan Robson Ltd v HMRC [2025] UKFTT 56 (TC)
Basic Broadcasting Ltd v HMRC [2024] UKUT 165 (TCC)
HMRC v S&L Barnes Ltd [2024] UKUT 262 (TCC)
HMRC v Professional Games Match Officials Ltd [2024] UKSC 29
Atholl House Productions Ltd v HMRC [2022] EWCA Civ 501
Kickabout Productions Ltd v HMRC [2022] EWCA Civ 502.
Rawlinson v HMRC [2026] UKFTT 45 (TC)
HMRC v Tottenham Hotspur Ltd [2017] UKUT 453 (TCC)
Hasted v Horner [1995] STC 766
The Best Connection Group Ltd v HMRC [2024] UKFTT 1103 (TC)
Tyler Security Ltd v HMRC [2025] UKFTT 1250 (TC)
