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HMRC internal manual

Employment Status Manual

Basic principles: how to account for the deemed employment payment

Paragraph 2 Schedule 12 Finance Act 2000/Section 50 ITEPA 2003

Regulation 8(1) SI 2000 No.727

Where the legislation applies the intermediary is treated as making a payment to the worker which is chargeable to income tax as employment income and subject to Class 1 NICs. This payment is called a deemed payment and is normally treated as paid on 5 April (see ESM8265 for exceptions).

Income received in respect of all relevant engagements is added together and a single deemed payment is treated as made.

For tax purposes, the worker is treated as an employee of the intermediary. The deemed payment is treated as income from that employment and taxed accordingly. It should be returned on the worker’s self-assessment tax return on the employment page for that employment, included with any other salary or wages paid in the normal way.

It should also be returned as such on any other forms, including forms P45, P60, or P35. It should be included in the total income from the employment and not shown separately. The usual forms should be used: the form P35 now includes a tick box to record the fact that a deemed payment has been included within the amount returned.

For NICs purposes, the deemed payment should be aggregated with any other earnings paid to the worker by the intermediary in the year which are derived from employed earner’s employment. The amount of Class 1 NICs payable in respect of that aggregate amount should be calculated using an annual earnings period prescribed in regulation 8 of the Social Security (Contributions) Regulations 2001, irrespective of whether the worker is a director of the company in the tax year. Where the provisions of the Intermediaries Regulations apply to the worker from the beginning of the tax year, the worker will have an annual earnings period by virtue of regulation 8(3) of the Contributions Regulations. Where a later date applies the worker is prescribed a pro-rata earnings period by virtue of regulation 8(2) of those regulations.