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HMRC internal manual

Employment Status Manual

Basic principles: how to account for the deemed payment: settling the liability - in-year event

Paragraph 12 Schedule 12 Finance Act 2000/Section 57 ITEPA 2003

Regulation 8 (1), (5), (6), (7) and (8) SI 2000 No.727

Regulation 24 Income Tax (Employments) Regulations 1993 where a relevant event occurs (see

ESM8240) the deemed payment is treated as made at the time of that event. In such cases PAYE should be operated in respect of the tax and NICs due as for any payment of salary. The liability should be paid to HMRC in the normal monthly or quarterly way and a P45 completed as for any other case.

If there is any delay in calculating a deemed payment where there is a cessation requiring a P45, then there is no objection to the P45 being issued ignoring the deemed payment, or including a provisional amount. When the correct amount is known, any adjustment to the amount of tax due can be made under regulation 24 of the PAYE regulations.

Regulation 24 provides for tax to be deducted at basic rate from payments made to an ex-employee after a P45 has been issued. There is no amended P45. Where this occurs page 15 of the Employer’s Further Guide to PAYE and NICs (CWG2(2001)) advises the employer to notify the Tax Office in writing with a copy to the employee; so the worker should not be unaware of a deemed payment.

If, before the deemed payment is calculated, there has been no office or employment where employment income was paid, so that there is no code number for the year, the intermediary does not need to issue a P45 simply because the deemed payment is linked to a cessation. But tax at the basic rate and NICs has to be accounted for to HMRC within 14 days of the end of the income tax month in which the deemed payment is treated as made.

There is no equivalent to the extra time allowed to calculate the deemed payment at the end of the year. So we require the P35 and the P14s due on 19 May to include the correct figures in respect of in-year deemed payments and the tax and NICs in respect of them.