As a member of the FCSA, JSA fully endorses today’s request from the Association, REC and APSCo for HMRC to urgently review the use of a new form of model potentially designed to circumnavigate a raft of laws aimed at protecting workers.
The Elective Deduction Model (EDM) is being promoted as a method of classifying workers as self-employed for employment law purposes but employed for tax purposes. Using this combination of status the intention is to side step National Minimum Wage requirements, Agency Workers Regulations, Pension auto-enrolment and the planned introduction of onshore intermediaries legislation.
Last week the Chancellor confirmed changes to the Agency Legislation to tackle the use of employment intermediaries facilitating false self-employment to avoid employment taxes. The government is of the opinion that a growing number of people are self-employed with the prime motive being the commercial interests of the engager whilst the self-employed individual, often a low paid “vulnerable” worker, misses out on employment rights such as pension contributions, redundancy pay and sick pay.
The changes, known collectively as the “onshore intermediaries legislation”, will deem a large number of people to be employed for tax purposes, coming at cost to the agency and/or the end-client. However, in a bid to continue to keep costs to the minimum, often at the expense of compliance, some companies have sought to exploit the difference between tax legislation and employment law. The EDM is one such model that appears to evade National Minimum Wage and AWR but offers the benefit of employment such as the ability to claim expenses.
Whilst arguably viable, but clearly unproven, the EDM model is clearly contrary to the spirit and intention of existing legislation, and is, in effect, tax avoidance. The Government has made it clear that it will introduce a Targeted Anti Avoidance Rule to tackle such avoidance so perhaps the EDM model will be short-lived. Compliance should be front of mind for any agency or end-client when working with any employment intermediary. The risk of non-compliance has never been greater and now is not the time to put your business’s reputation and balance sheet at risk for the sake of (very) short term gain.