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HMRC internal manual

Employment Status Manual

Basic principles: how to work out the deemed payment: step four

Paragraph 7 Schedule 12 Finance Act 2000/Section 54(1) ITEPA 2003

Regulation 7(1) SI 2000 No.727

A deduction is given at Step Four for capital allowances in respect of expenditure incurred by the intermediary that could have been claimed by the worker if he or she:

  • had incurred that expenditure; and
  • had been employed by the client

The normal employment income rules have to be satisfied if a deduction is to be given at Step Four (see EIM31600). Just because the company has incurred capital expenditure, on which it gets capital allowances for Corporation Tax purposes, does not mean that a deduction will be given at this step. The test is what the duties of the employment require.

For example, an intermediary may own computer equipment. However, the client provides all of the equipment necessary to complete the job and the intermediary only uses its own equipment out of choice. In this case capital allowances will not be due for the intermediary’s equipment. The fact that a contract may require the intermediary to own computer equipment does not necessarily mean that it is necessary to the performance of the duties.

Motor Vehicles

For periods up to and including 5 April 2002, where an intermediary owns a motor vehicle and claims a deduction at Step Three on the basis of the Inland Revenue Authorised Mileage Rates, capital allowances will not be available as a deduction at Step Four. This is because the Rates include an allowance for capital expenditure.

For periods on or after 6 April 2002, employees cannot claim capital allowances for motor vehicles - see the guidance at EIM36750 - and therefore no deduction is due at Step 4. See however, the guidance at ESM042 in relation to a deduction at Step 3 for mileage allowance relief and at Step 7 for authorised mileage allowance payments (AMAPs).

Expenditure before 6 April 2000

Where expenditure was incurred prior to 6 April 2000 and relief is claimed in working out the deemed payment, then the market value of the asset at that date should be used as the acquisition cost.