The requirement for 336 hours which is shown in HMRC’s internal guidance manuals is a debatable point in as much as there is no legal precedent, that I am aware of, for that specific number of hours to be entered into a contract for it to become over-arching. However, what is required is mutuality of obligation in the gaps between assignments as this is what maintains continuity of employment.
HMRC’s argument is that travel and subsistence expenses can only be claimed when a worker is travelling to a temporary location and, without an over-arching contract, the various destinations of an umbrella company worker would become a series of permanent workplaces and therefore there would be no entitlement to tax relief on any travel expenses.
The case law that they refer to, in order to support their arguments, is quite extensive – the most well know is Clark v Oxfordshire Health Authority but you can also refer to Carmichael & Another v National Power PLC and, more recently, Stringfellow Restaurants v Quashi – in all these cases the worker received no consideration from the employer in the gaps between their assignments and therefore it was upheld that there was no mutuality of obligation and therefore no contract of services. As with anything else in law, the points raised in each of these cases can be argued against but it’s not so much defending the legal position that’s at issue, it’s the fact that HMRC will not consider a contract to be overarching unless there is mutuality between assignments – this has been confirmed by them in writing – and if that is the case then employee’s will have no entitlement to tax relief on travel expenses and HMRC will look to recover the tax and NIC’s due on any erroneous claim.
All Umbrella Companies was, as a concept, designed to create a method of working for all umbrella companies that will satisfy HMRC and therefore protect us from challenge; all members’ contracts are required to contain the provision for pay between assignments as this is what is required by HMRC but it’s also the case that it would be difficult to prove, in a court of law, that there was an employer/employee relationship without such a provision.