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HMRC internal manual

Employment Status Manual

HM Revenue & Customs
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How to work out the taxable profits of the intermediary

Paragraph 17 Schedule 12 Finance Act 2000Where an intermediary is treated as making a deemed payment then, in calculating its profits for tax purposes, a deduction is allowed for:

  • the amount of the deemed payment, and
  • the amount of any secondary Class 1 NICs paid on it.The deduction is allowed as a computational adjustment in calculating the taxable income of the intermediary. Relief is given against the profits for the period of account in which the deemed payment is treated as made. It is important to note that:

  • the deduction is calculated on a fiscal year basis
  • the deduction is treated as being made on 5 April of that tax year (unless an in year event occurs, see ESM3183), and
  • if the intermediary is a partnership which makes up its accounts to a date other than 5 April, the deduction is only given in the accounting period in which the deemed payment is treated as made and is not to be apportioned between the accounting periods.Although relief is given as an adjustment in the corporation tax computation, a deduction may also have been made in the accounts of the intermediary for the tax and Class 1 NICs under normal accountancy principles. The legislation only allows relief for the deemed payment and additional NICs to be given once, as outlined above. Inspectors should be aware of this and be alert to the possibility of relief being claimed twice; once through the accounts and again as a deduction in the tax computation.

The fact that expenditure is given as a deduction in Steps Three to Seven of the Deemed Payment calculation does not affect the treatment of that expenditure in calculating the corporation tax profits of the company.