Employment taxes
Travel time to work not subject to national minimum wage
The Court of Appeal has dismissed HMRC’s appeal that workers should be paid national minimum wage (NMW) for travel from their home to work around the country.
The taxpayer employed poultry workers on zero-hour contracts. These employees were collected directly from their homes, in employer-arranged minibuses, and travelled to poultry farms across the country to carry out their duties of employment.
A ‘time worker’ is entitled to be paid at least NMW for hours treated as working time in each and every pay reference period. HMRC had argued that as the workers were classified as time workers for the purposes of NMW, this time spent travelling to their place of work should be treated as ‘working time’. One of the reasons for this argument was under the interpretation of Regulation 34 of the NMW Regulations 2015. This states that the hours when a worker is travelling, and ‘where the worker would otherwise be working’, should be treated as working time.
The UT dismissed the appeal on the basis that time spent travelling from home to the employer’s premises, including under the employer’s control, should not be treated as working time. It was recognised that the workers would not ‘otherwise be working’ during the commute time and were able to use this time as they wished, subject to the constraints of being in the back of a minibus. Therefore, travel time was not required to be treated as working time and no further remuneration was payable.
HMRC v Taylors Services Ltd & Ors [2025] EWCA Civ 956
From Tax Update August 2025, published by S&W Partners LLP
VAT
Mini umbrella company fraud
The Upper Tribunal (UT) has issued its decision in a case concerning mini umbrella companies (MUCs), and their use of the VAT flat rate scheme (FRS) and the annual employment allowance (EA) for employer national insurance contributions. Thousands of other appeals are stayed pending the outcome of these lead cases.
HMRC had: deregistered the MUCs from VAT, on the grounds that the MUC scheme was fraudulent; issued assessments on the basis that they were not entitled to use the FRS; and denied their entitlement to use EA. The First-tier Tribunal (FTT) held that although there were objective grounds for HMRC to conclude that the MUCs’ VAT numbers were being used for fraudulent purposes, HMRC could not prove that the MUC directors knew or should have known that the VAT registration was being used fraudulently. Consequently, HMRC could not deregister the MUCs. However, the First-tier Tribunal (FTT) endorsed HMRC’s decision to deny the MUCs the benefit of the FRS and the EA. HMRC and the MUCs each appealed the FTT decision.
The UT has found there was no need for HMRC to establish that the MUC directors knew or should have known that they were facilitating a fraud to deregister the MUCs. That there were objective grounds for concluding that the VAT numbers would be used fraudulently was sufficient. The UT agreed with HMRC and the FTT’s decision with respect to the use of the FRS and the EA. HMRC’s appeal was upheld, and the MUCs’ appeal was dismissed.
Elphysic Limited & Ors v HMRC [2025] UKUT 236 (TCC)
From the Business Tax Briefing dated 8 August 2025, published by Deloitte
Single or separate supplies
United Carpets (Franchisor) Limited is a retailer of flooring materials. Customers purchasing flooring materials were given the option to have an independent, self-employed fitter carry out the fitting. United Carpets considered that the fitting services were separately supplied to customers by the fitters and accounted for VAT only on its sales of the flooring materials. HMRC considered that United Carpets was making single supplies of flooring materials and fitting services, on the basis that the fitters were subcontractors, and assessed United Carpets for under-declared VAT.
The First-tier Tribunal (FTT) has held that there were two separate supplies: the supply of goods (carpets and other flooring) by United Carpets to the customer, and the supply of services (fitting) by the fitter to the customer. Having reviewed the contractual documentation and the economic and commercial reality, the FTT was satisfied that there were three agreements: between United Carpets and the customer, between United Carpets and the fitter, and between the fitter and the customer, with the fitter providing services to the customer and the customer liable to pay the fitter.
Although not necessary given its conclusion, the FTT also considered United Carpets’ argument that the assessments should be quashed based on legitimate expectation, as HMRC had stated in the course of its investigation that they would not be taking any further action regarding United Carpets’ VAT treatment. However, the FTT found that HMRC had advised that it would not be taking further action “at this time”. Accordingly, there had not been a clear and unambiguous statement so as to create a legitimate expectation. This conclusion was academic, given the FTT’s findings on the supply issue, and accordingly United Carpets’ appeal was allowed.
United Carpets (Franchisor) Limited v HMRC [2025] UKFTT 895 (TC)
From the Weekly VAT News dated 4 August 2025, published by Deloitte
Regulation of private hire vehicles
The Supreme Court has issued its judgment in the case of D.E.L.T.A. Merseyside Limited and another v Uber Britannia Limited, confirming that private hire vehicle operators (PHVOs) can operationally structure themselves as agents under the Local Government (Miscellaneous Provisions) Act 1976 concerning the regulation of private hire vehicles outside of London. While this is a regulatory case, it has consequences on the commercial models, and thus the VAT outcomes, available to PHVOs. This now results in a misaligned national position, following the earlier High Court decision concluding that PHVOs are obliged to be structured as principals under the equivalent regulations applicable in London (which was not appealed).
In April 2024, HMRC issued a consultation on the VAT treatment of private hire vehicles. The consultation closed in August 2024 and it remains to be seen what impact this Supreme Court judgment will have on the government’s approach in this area. Also outstanding is the application of the tour operators’ margin scheme (TOMS) to the sector, which will be considered by the Court of Appeal in the case of Bolt Services UK Limited next year.
D.E.L.T.A. Merseyside Limited & Anor v Uber Britannia Limited [2025] UKSC 31
From the Business Tax Briefing dated 1 August 2025, published by Deloitte
Practical Points
Every month, the Tax Faculty publishes short, practical pieces of guidance to help agents and practitioners in their day-to-day work.
