False Self Employment – Elective Deductions Model

‘New model tries to duck false self-employment rules’ freelanceuk.com The first model designed to avoid the imminent crackdown on false self-employment by onshore intermediaries has emerged, angering freelancers’ supporters but not, so far it seems, HMRC. In fact, the Freelancer & Contractor Services Association…


HMRC are aware of these schemes – they said as much yesterday (4th April) at our seminar where we had Robert Burton as a key speaker. Robert was reasonably clued up on them. The general message I took away from his comments was to “watch this space”….they’re probably going to have a short shelf-life. From what I can gather they’re a type of hybrid model where the worker is treated as employed for tax purposes but self employed with respect to employment law. My guess would be that the scheme providers assumed HMRC wouldn’t be too bothered about them because whilst it’s almost certainly a case of false self employment, it doesn’t result in tax being paid on a self employed basis. However, EDM’s do seem to encourage evasion of NMW through false self employment and HMRC are responsible for policing the NMW, of course. Obviously other government depts. will also take an interest in things like avoidance of pension auto-enrolment, AWR, and other statutory employment rights being withheld due to false self employment. I’d like to think that EDM’s could be directly challenged under TAAR, but in all honesty I doubt that’ll be the case due to the fact they’re not purely a tax avoidance mechanism (but clearly do avoid other employment costs, of course).
Stuart Marquis, Liberty Bishop

That makes sense. It did sound like the model was complying with the amended agencies legislation. This is the short coming of tackling the issue the way the government have. The consultation document talked of concerns that workers were being deprived of employment rights and that tax and NI was being avoided but the legislation change tackled only the tax and NI issue. So, where the changes in legislation bite (as opposed to people moving away from that model) the legislation itself creates the problems that are being identified with the EDM model. There seemed to be some suggestion in the government’s documents that they expected people to be moved into direct employment (since there are no tax or NI benefits of “false self-employment”) and so workers would gain rights that way. Just shows how much of an issue NMW (and possibly AWR) is for employers of large numbers of low paid workers, given that the EDM is being marketed based on it avoiding NMW etc.
Graham Jenner, No Palaver Umbrella

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