MyPay v HMRC: growing tax risks for umbrella companies and labour supply chains

A recent tax tribunal decision provides an important warning for businesses that rely on umbrella companies, recruitment agencies and other contingent labour arrangements. It highlights HM Revenue and Customs’ (HMRC’s) increasing scrutiny of umbrella companies, employment status and labour supply chain tax compliance.

In MyPay v HMRC [2026] UKFTT 00807 (TC), the First-tier Tribunal highlighted the increasing tax risks associated with umbrella company and labour supply chain structures. The case considered whether sufficient ongoing obligations existed between assignments to create a single, continuing employment relationship under an overarching umbrella company arrangement.

The tribunal concluded that they did not. Workers engaged through the umbrella arrangements were employed only for the duration of individual assignments because there was insufficient “mutuality of obligation” between assignments. In particular, workers were not required to accept future work, and the employer was not obliged to provide or pay for work between assignments.

Travel expenses and Pay As You Earn (PAYE) implications

The consequences were significant. As there was no overarching employment relationship, travel between workers’ homes and assignment locations constituted ordinary commuting rather than business travel. As a result, tax relief was not available for those expenses and PAYE and National Insurance Contributions (NICs) liabilities arose where travel costs had been reimbursed free of tax.

The decision follows other recent cases, including Mainpay and Exchequer Solutions, which demonstrate the courts’ increasing reluctance to accept overarching employment contract arguments where the contractual terms and day-to-day working arrangements do not establish genuine continuing obligations between assignments. Thereby, increasing the likelihood that travel between a worker’s home and assignment location will be treated as ordinary commuting, preventing tax relief for those expenses.

Wider implications for umbrella companies and labour supply chains

While the immediate issue concerned the tax treatment of travel expenses, the implications extend much further.

For businesses that rely on contractors, agency workers and contingent labour to address workforce demands, the decision serves as another reminder that both HMRC and the courts will look beyond contractual labels and focus on the practical reality of the working arrangement.

This reinforces the need for businesses to review not only their contractual documentation but also their operational practices to ensure they accurately reflect how labour is engaged in practice. Clauses requiring an engager merely to “offer” work or to “endeavour” to find work may be insufficient to support the intended tax treatment if they do not create genuine ongoing obligations.

Increasing HMRC scrutiny

The MyPay decision comes at a time of heightened HMRC scrutiny of labour supply chains, umbrella company arrangements and off-payroll working compliance.

Businesses should ensure they understand where tax risk sits across their contractor, agency and umbrella company arrangements. This includes reviewing:

• employment status determinations
• IR35 and off-payroll working compliance processes
• contractual frameworks throughout the labour supply chain
• PAYE and NICs responsibilities under the relevant supply chain tax rules
• supply chain governance and oversight procedures
• potential exposure arising from umbrella company arrangements.

For many organisations, a proactive review can help identify areas of risk before they become the subject of HMRC enquiries or assessments.

How Birketts can help

Birketts advises businesses across a broad range of sectors on managing labour supply chain tax risk, employment tax compliance and IR35 and off-payroll working obligations.

Our specialist corporate tax, employment and commercial teams provide integrated advice on:

• IR35 and off-payroll working compliance
• employment status assessments and governance frameworks
• agency, contractor and umbrella company arrangements
• labour supply chain contractual reviews
• PAYE and NIC risk identification and remediation
• supply chain governance and HMRC enquiries.

Our approach focuses on understanding how labour is engaged in practice, identifying where tax risk sits within the supply chain and implementing practical, proportionate solutions tailored to your organisation

Why Birketts?

• integrated advice from corporate tax, employment and commercial specialists
• practical, risk-focused guidance rather than technical theory
• clear identification of tax exposures and proportionate remediation strategies
• extensive experience in IR35 compliance, off-payroll working rules, employment status, and labour supply chain governance
• deep sector expertise spanning more than 15 industry sectors.

Speak to our team

If you would like to discuss IR35 compliance, off-payroll working rules, employment status assessments, umbrella company arrangements or your wider labour supply chain tax risks, please contact a member of the Birketts corporate tax team.