EDM tries to avoid false self-employment rules, HMRC told

The first model designed to avoid the imminent crackdown on false self-employment by onshore intermediaries has emerged, angering contractor groups but not, so far it seems, HMRC.

In fact, the Freelancer & Contractor Services Association, the Recruitment & Employment Confederation and the Association of Professional Staffing Companies say they have had to alert the taxman to the model.

Known as the Elective Deduction Model (EDM), the groups want HM Revenue & Customs to take action against it and those promoting it as a way to classify workers as self-employed for employment law purposes -- but employed for tax purposes.

Using this combination of status, the groups say the “clear aim” of those peddling the EDM is to side-step the onshore intermediaries legislation, which is due to take effect from April 5th 2014.

The Revenue must “urgently review” the EDM because, as well as the incoming rules to tax false self-employment, the groups also say it has the potential to circumnavigate the Agency Workers Regulations, Pensions Auto-Enrolment and NMW rules.

“We are incredibly concerned about the use of these models,” said Matthew Brown, managing director of Giant Group and a non-executive chairman of the FCSA.

“They afford very little protection to the worker given the avoidance of employment status and create huge risks to the recruitment businesses and end-clients, caught in this scheme.”

He has told HMRC to reassure the professional recruitment sector by reviewing EDMs and moving to prevent what he condemned them as -- a “clear avoidance tactic,” in line with calls from APSCo.

“[We] fully support robust self-regulation in the intermediaries sector,” reflected the association’s boss Ann Swain. “[But]  we would oppose the promotion of any model designed specifically to avoid existing or new tax or employment legislation”.

The REC agreed. “Any model that markets the evasion of NMW and AWR as key selling points has no place in our industry”, said the confederation’s chief executive Kevin Green.

He added: “These models fundamentally undermine compliant recruitment businesses and we expect HMRC to take swift, decisive action against this and any future models that so profoundly distort the otherwise professional recruitment market.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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