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HMRC internal manual

Employment Status Manual

Particular issues: avoidance of double taxation

Paragraph 13 Schedule 12 Finance Act 2000/Section 58 ITEPA 2003

Regulation 6(3) SI 2000 No. 727


The legislation does not require the intermediary to pay a salary at any time. What it does is to require a calculation of tax and NICs to be made, based upon a deemed payment and the intermediary has to account to the Revenue for the tax and NICs due.

Where a deemed payment arises, the worker receives nothing from the intermediary. He or she will normally want to draw funds from the intermediary. Where a company is concerned this could be via the director’s loan account, by way of remuneration or as a distribution.

If the funds are drawn via the director’s loan account, then no additional liability will arise, provided that the account remains in credit. Should the funds be paid out as further remuneration then the normal employment income and NICs liabilities will arise on that amount.

However, in order to avoid double taxation of the deemed payment, the legislation provides for a distribution to be made up to the amount of the deemed payment without additional liability arising.

The company can make a distribution equal to the amount of the deemed payment without additional tax liability arising on the recipients. Where the distribution is reduced, the amount of the tax credit is reduced accordingly. The distribution can be made to any participator in the company, not just the worker.

In order to keep track of the relief that has been given the company has to make a claim. This claim should be made in writing by the company within the normal time limits for making claims.

If relief is given for a particular dividend, the recipient does not need to show it in their SA return.

See ESM8415 for guidance on the procedural aspects of making and handling claims.