ESM8150 - Basic principles: how to calculate the deemed payment: example using step by step guide

Periods up to 5 April 2002

Mr C is a draughtsman in the aerospace industry who works through his own limited company, C Services Ltd. He provides services to Client Ltd under a contract, which falls within the legislation. Client Ltd pays £40,000 to C Services Ltd for the services provided by Mr C.

Mr C does no other work in the year and the service company:

• pays him a salary of £4,000
• provides him with a car, in respect of which the total running costs are £3,000 (car used 50% for business travel/ 50% for private use) and there is a benefit in kind of £2,000, and
• makes pension contributions of £2,000.

(The capital allowances that Mr C could claim on the car after adjustment for private use are £1,500).

Step	What to do	Box number	Amount
Step One	Enter in this box the amount of all payments and benefits received by the intermediary in that tax year in respect of the relevant engagement	1	40,000
Step One	Enter in this box 5% of the amount in box 1	2	2,000
Step Two	Enter in this box the amount of any payments and benefits received directly by the worker and not otherwise chargeable to tax as general earnings in respect of the relevant engagement	3	0
Step Three	Enter in this box the amount of any expenses met by the intermediary, which could have been claimed as expenses against income tax if the worker had been an employee of the client and had paid for them himself.	4	1,500
Step Four	Enter in this box the amount of any capital allowances in respect of expenditure incurred by the intermediary that the worker could have claimed if employed by the client and he or she had incurred the expenditure	5	1,500
Step Five	Enter in this box the amount of any contributions to a registered pension scheme by the company for the benefit of the worker	6	2,000
Step Six	Enter in this box the amount of any secondary Class 1 and Class 1A NICs paid by the intermediary for that year in respect of salary or benefits in kind provided to the worker during the year	7	366
Step Seven	Enter in this box the amount of any salary and benefits in kind received by the worker from the intermediary which are already taxable as general earnings (this does not include anything for which a deduction has already been given at Step Three.	8	6,000
Step Seven	Add together the contents of boxes 1 and 3 and enter the sum in this box	9	40,000
Step Seven	Add together the contents of boxes 2, 4, 5, 6, 7, and 8 and enter the sum in this box	10	13,366
Step Seven	Deduct the contents of box 10 from the contents of box 9 and enter the answer in this box. If the answer is nil or a negative number there is no deemed payment. Where the answer is a positive number you will need to apportion the amount between the earnings payment and secondary Class 1 NICs using the stencil at ESM8220	11	26,634
-	Enter the amount of secondary Class 1 NICs in this box	12	2,854
Step Eight	Deduct the amount in box 12 from the amount in box 11 and enter the amount you are left with in this box. This amount is the deemed earnings payment	13	23,780