Category: Overarching Contract of Employment

What is an Over-Arching Contract of Employment and why does an umbrella company need one?

Travel expenses are only payable if you are travelling to a temporary workplace. This is defined by HMRC as: “A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose. So even where an employee attends a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if the employee attends for the purpose of performing a task of limited duration or other temporary purpose.”

As a contractor you will work on different assignments in different locations for a limited duration in each case but in order for HMRC requirements to be met they will need to be linked under a single employment.

The Umbrella Company is your employer and you will work, as a permanent employee, under an overarching Contract of Employment. However, if you intend only to work on a single assignment whilst in your employment with the umbrella company then your workplace automatically becomes permanent and the cost of travel is therefore not an allowable expense.

Expense claims for travel are also subject to the ’24 month rule’ which prevents a workplace from being a temporary workplace where an employee attends it in the course of a period of continuous work that lasts, or is likely to last, more than 24 months.

Is the new umbrella company shake up on the cards for the Budget 2015?

In his Autumn Statement speech, the Chancellor announced a number of new measures which may result in further action being taken against unethical umbrella providers in 2015. Industry figures give their reaction. What did the Chancellor say about umbrella companies? In the tax-avoidance part of the speech itself, George Osborne said that the Government was consulting on measures “including the use of so called ‘umbrella companies’ to deprive people of basic employment rights like the minimum wage and avoid tax.”

In the official documentation, further action is also planned to tackle the use of ‘overarching contracts’ by some umbrella schemes to further exploit expenses rules: 2.147 Overarching contracts of employment and temporary workers The government will review the increasing use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’.

These arrangements enable workers to obtain tax relief for home to work travel that would not ordinarily be available. The government will publish a discussion paper shortly to inform possible action at Budget 2015.

So, what does this mean for the umbrella company industry? Lisa Keeble, Co-Founder of All Umbrella Companies Are Equal, comments at

The requirement for 336 hours in an Over-Arching Contract of Employment

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.