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HMRC internal manual

Employment Status Manual

Basic principles: what happens when there is a relevant engagement

Paragraph 2 Schedule 12 Finance Act 2000/Section 50 ITEPA 2003

Regulation 6(3) SI 2000 No.727

Where an intermediary has a relevant engagement to which the legislation applies, then:

  • if a worker receives, or is entitled to receive, directly or indirectly, a payment from the intermediary, which is not employment income and Class 1 NICs - for example, a dividend
  • tax and Class 1 NICs must be paid on a minimum amount of salary. This may be either in the form of actual payments during the year or as a notional payment deemed to have been paid to the worker by the intermediary on the last day of the tax year, or earlier in certain cases (see ESM3183)

This is referred to as “the deemed payment” in the tax legislation, and as “attributable earnings” in the NICs regulations.

Where the legislation applies it has the following effect:

  • the client - is not affected and continues to make gross payments as before
  • the intermediary - is treated as making a payment to the worker which is taxable as employment income and subject to Class 1 NICs. For NICs purposes, the intermediary is treated as the secondary contributor.
  • the worker - is treated as receiving a payment chargeable to income tax under Schedule E/as employment income and subject to Class 1 NICs from the intermediary, see ESM3181. For NICs purposes, the worker is treated an employed earner of the intermediary for the purposes of Parts I to V of the Social Security Contributions and Benefits Act 1992 (in Northern Ireland, the Social Security Contributions and Benefits (Northern Ireland) Act 1992).