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HMRC internal manual

Employment Status Manual

Basic principles: how to work out the deemed employment payment where the intermediary has income that is not from relevant engagements - example

Mr F works through a service company, F Services Ltd, in which he owns all of the shares. F Services Ltd receives £60,000 during the year of which:

  • £40,000 is in respect of relevant engagements and
  • £20,000 from other business activities which do not fall within the rules.

F Services Ltd incurs the following expenses during the course of the year:

  • Mr F is paid a salary of £20,000
  • the employer’s NICs on the salary is £1,905
  • employer’s pension contributions of £4,000
  • travel costs relating to relevant engagements £500

The deemed payment is calculated as follows:

Step One Income from relevant engagements   40,000
Step One 5% flat rate allowance 2,000  
Step Three Expenses 500  
Step Five Pension contributions 4,000  
Step Six Employer’s NICs paid in year 1,905  
Step Seven Salary paid in year 20,000  
  Total deductions 28,405 28,405
  Net amount   11,595
Step Eight Employer’s NICs on deemed payment   1,261
Step Nine Deemed payment   10,334