EDM must be urgently reviewed, experts claim

Thursday 3 April 2014

Contracting groups are calling for HM Revenue and Customs (HMRC) to review the use of a new model created to sidestep false self-employment laws.

The Freelancer and Contractor Services Association (FCSA), the Recruitment and Employment Confederation (REC) and APSCo have sent a request to the government body to address the Elective Deduction Model (EDM), which is currently being marketed as a way to classify workers as self-employed to comply with employment law, but to mark them as employed for tax purposes.

Experts are claiming that the EDM is a blatant way to avoid National Minimum Wage compliance, Agency Workers Regulations, Pension auto-enrolment and the introduction of onshore intermediaries legislation.

However, HMRC is yet to air its disapproval of the scheme and the industry is looking for a sign that all forms of avoidance will be quashed.

Matthew Brown, FCSA non-executive chairman, said: "We are incredibly concerned about the use of these models. 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.

"We urge HMRC to review these models as a matter of urgency and to reassure the professional recruitment sector that this clear avoidance tactic will be prevented."

Ann Swain, chief executive of APSCo, echoed these sentiments, stating that the body would "oppose the promotion of any model designed specifically to avoid existing or new tax or employment legislation".

Rec chief executive officer Kevin Green added that schemes like EDM have no place in the industry and undermine the existence of legitimate recruitment businesses.

The creation of an avoidance scheme also adds to fears that new false self-employment rules will harm the contractor market.

Martin Hesketh, Brookson managing director, has previously said that the reforms will have a negative impact on personal service companies (PSCs).

He claims that while the motive behind the legislation is to be commended, there are concerns about the knock-on effect this will have for legitimate personal service companies.

Indeed, there have been calls for the government to clarify further what the new laws will mean in practice.

One consequence of the changes could be that recruitment businesses will need to verify if any of their candidates working on a contract basis aren't under the direction, supervision or control of their client.

If this can't be verified, an agency would be obliged to deduct income tax and national insurance from payments made to the contractor. This will apply even if the individual in question operates through a limited company.

PCG public affairs adviser Andy Chamberlain also believes the measures could harm the way freelancers engage with clients through agencies.

Once in effect, the new legislation will require employment intermediaries to hold the full name of a contractor, their National Insurance number, address, date of birth, gender, passport number or ID card number if they aren't a UK citizen, reason why income tax and national insurance aren't being deducted by an employment intermediary, and the name and address of the business that the worker is being supplied to.

By Victoria McDonnell

Get in touch

Please select your type of enquiry:

Brookson on Twitter