What is the Elective Deduction Model?

HMRC are reported to be keen to clamp down on the Elective Deduction Model (EDM) in a similar vein that it has with the payday by payday tax relief model that some umbrella companies used as a means of by-passing the national minimum wage legislation.

But what is the Elective Deduction Model?

In summary an Elective Deduction Model is an engagement model where the worker remains on a self-employed contract for services but earnings are taxed. Because the person is self-employed he/she is not entitled to National Minimum Wage, pension, holiday pay, notice pay, SSP and other employment rights. It also avoids The Agency Workers Regulations (AWR) and False Self-Employment Legislation. It is therefore a way that some companies can bypass the National Minimum Wage to the detriment of the worker.

In effect workers as self-employed for employment law purposes but employed for tax purposes.

The model first appeared as an attempt to get round the false self-employment legislation introduced in April 2014.

At Umbrella, like all compliant umbrella companies, we do not and have never operated either an Elective Deduction Model or a Pay Day by Pay Day Model.