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HMRC internal manual

Employment Status Manual

Basic principles: off-payroll working: how to calculate the deemed payment - example

Section 61Q Chapter 10 ITEPA 2003

Regulation 17 The Social Security (Miscellaneous Amendments No. 2) Regulations 2017

Philip provides his services through a personal services company (PSC), Philip Ltd. The PSC has accepted a contract from a public authority to supply Philip’s services for twelve months. Philip starts work on 1 May 2017.

The public authority knows that, from 6 April 2017 changes have been introduced for people working off-payroll in the public sector. They tell Philip Ltd that his services fall within these new rules and as a result, it will deduct tax and NICs from the amounts Philip Ltd invoices each month.

Philip Ltd sends the public authority an invoice for £7,200 each month as the agreed charge which includes VAT (£1,200). During the engagement Philip incurs expenses of £250 per month, the cost of which is met by his PSC but for which he could have claimed a deduction if employed by the public authority. Philip also provides materials necessary to the performance of the contract via his intermediary at a cost of £750 per month.

Step One

Identify the amount of the chain payment net of VAT                                                    £6,000

Step Two

Deduct direct cost of any materials                                                                                        (£  750)

Step Three

Deduct eligible expenses                                                                                                             (£  250)

Step Four

The deemed direct payment                                                                                                        £5,000

The deemed direct  payment will be chargeable to PAYE and NICS on a monthly basis in the same way as a direct employee and the normal Real Time Information processes should be followed. Further guidance on this process can be found at