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HMRC internal manual

Employment Status Manual

Basic principles: how to work out the deemed payment: step seven - example of deduction given at step three for which no deduction given at step seven


Ms G provides engineering services through her personal service company, G services Ltd, to a car manufacturer for 18 months, under a relevant engagement. She is a director of G Services Ltd.

Ms G has to provide her services at the client’s premises and travels from her home each day by train. Her company buys a season ticket for her costing £1,000 in respect of her travel that attracts a full deduction under Section 338 ITEPA 2003.

The amount of £1,000 is chargeable to tax as employment income and Ms G is permitted a deduction under Section 338 ITEPA 2003 of £1,000 in assessing those emoluments/earnings.

In working out the deemed payment, Ms G gets a deduction at Step Three for the full amount of £1,000. These are expenses met by the intermediary for which she could have claimed a deduction against her earnings under the normal rules if she had been employed by the client and had met those expenses out of those earnings.

Although the amount of £1,000 is chargeable to tax as employment income, Ms G will not get a further deduction at Step Seven because it represents an item in respect of which a deduction has been made at Step Three.