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HMRC internal manual

Employment Status Manual

Basic principles: off-payroll working: accounting for the deemed payment

From 6 April 2017, for PAYE and NICS purposes, the worker’s intermediary may treat the amount of the end-of-line remuneration paid to the worker as reduced by one or more of;

●             The amount of the deemed direct payment

●             The amount of capital allowances in respect of expenditure incurred by the intermediary that could have been deducted from employment income under section 262 of CAA 2001 if the worker were an employee of the public authority.

●             The amount of any contributions made in the same tax year for the benefit of the worker by the intermediary into a registered pension scheme.

These deductions are allowed where the worker receives a payment from their intermediary which could reasonably be taken to represent remuneration for services provided by the worker to a public authority. 

The end-of-line payment can be

●             Earnings of the worker from the intermediary

●             A distribution or dividend from the intermediary

●             Some other form.              

The deductions cannot exceed the level of payment made to the worker.



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 tells Philip that because of the legislative changes they will deduct tax and NICS from the amounts Philip Overnight Ltd invoices each month. Philip Overnight Ltd sends the public authority an invoice for £7,200 each month as the agreed charge which includes VAT (£1,200).  Calculation not checked

The deemed direct payment will be

Chain payment less VAT                                                                                              £6,000

Deduct cost of materials                                                                                                     nil

Deduct eligible expenses                                                                                                     nil  

Deemed Direct Payment                                                                                              £6,000

The public authority will be the fee-payer for the purposes of the new rules and will need to deduct;

●             £1,400 tax

●             £400 employee NICS


The public authority will also account for;

●             £700 employer NICS


Each month the fee-payer will pay Philip Ltd £5,400 which is £4,200 for Philip’s services plus the £1,200 VAT.


The public authority will be required to complete a ‘Starter Declaration C’ form for workers engaged through their PSC and return through the Real Time Information system.  

Philip Ltd then pays Philip a monthly salary of £1,000 and a monthly dividend of £3,200.

The payment to Philip is therefore £4,200 per month (£1,000 salary plus £3,200 dividend). When this is paid Philip Ltd can, for PAYE and NICS purposes, reduce this payment by up to the amount of the DDP;

End-of-line payment made                                                                                         £4,200

LESS DDP                                                                                                                 (£4,200)

Chargeable to PAYE / NICS                                                                                                nil

NOTE – The deduction of the DDP cannot exceed the amount of the end-of-line remuneration paid.