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HMRC internal manual

Employment Status Manual

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HM Revenue & Customs
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How to work out the taxable profits of the intermediary: special rules for partnerships

Paragraph 18 Schedule 12 Finance Act 2000Special rules apply for partnerships to restrict the amount of any loss created by a deemed payment and the expenses incurred in respect of the deemed payment.

The deduction of the deemed payment from taxable profits cannot create a loss for the partnership. Additionally, no deduction is allowed for expenses incurred by the partnership in relation to engagements to which the legislation applies, except those which can be deducted in the calculation of the deemed payment (see ESM3140).

The amount of the deduction allowed for the deemed payment in calculating the trading income profits is limited to the amount that reduces those profits to nil. Therefore a deemed payment and the employer’s NICs on that payment cannot create a trading loss.

Where the partnership expenses incurred in respect of the relevant engagements exceed the sum of:

  • the expenses allowable at Step Three, and
  • the 5% flat rate allowance at Step Onethen they are left out of account in calculating the trading income profits. See example at

ESM3203.