What is the deemed payment calculation under IR35?

Part 3 Trading income Chapter 9 Trade profits: other specific trades Intermediaries treated as making employment payments Deduction for deemed employment payment 139 1 This section applies for the purpose of calculating the profits of a trade carried on by an intermediary which is treated as making a deemed employment payment in connection with the trade. 2 A deduction is allowed for— a the amount of the deemed employment payment, and b the amount of any employer's national insurance contributio

The intermediaries legislation, commonly referred to as IR35, is anti-avoidance legislation designed to stop individuals gaining a tax and National Insurance advantage by disguising their employment status. In an IR35 case, an individual provides their services to a client via an intermediary. The intermediary is usually a company but can also be a partnership or individual. The intermediary earns all, or most, of its income from supplying the individual’s services in circumstances that would be

Paragraph 8 Schedule 12 Finance Act 2000/Section 54(2) ITEPA 2003 Regulation 7(2) SI 2000 No. 727 Section 559 ICTA 1988 Section 559 ICTA 1988 concerns payments within the construction industry between contractors and sub-contractors. Where this section applies and the intermediary is treated as a sub-contractor within the construction industry, then payments may be made to it by the client under deduction of tax. In such cases, the deemed payment calculation is based upon the full amount of the

Assume the following facts. B Ltd (a personal service company) contracts to supply the services of its director, A, to P Ltd (the end client). The terms of the engagement are such that the contract is within Part 2 Chapter 8 ITEPA 2003 (the intermediaries legislation, commonly known as ‘IR35’). During the tax year, P Ltd pays B Ltd consideration under the contract. The arrangement comes through the Section 554A gateway. In particular, when P Ltd pays B Ltd consideration under the contract it tak

This does not apply to excess contributions made and later repaid. Step 6 Deduct the amount of any employer’s national insurance contributions paid by the intermediary for the year in respect of the worker. Step 7 Deduct the amount of any payments and benefits received in the year by the worker from the intermediary— a in respect of which the worker is chargeable to income tax as employment income, and b which do not represent items in respect of which a deduction was made under step 3. Step 8 A

The agency legislation takes precedence over the managed service company and Intermediaries legislation (sometimes known as IR35). If the agency legislation does not apply, or remuneration paid to the worker from any party in consequence of providing the services is not fully taken into account under the agency legislation, then the PSC must go on to consider if the provisions of the managed service company legislation apply. PSCs which do not meet the definition of a managed service company mus

Part 2 Employment income: charge to tax Chapter 8 Workers' services provided through intermediaries to small clients The deemed employment payment Calculation of deemed employment payment 54 1 The amount of the deemed employment payment for a tax year (“ the year ”) is the amount resulting from the following steps— Step 1 Find (applying section 55) the total amount of all payments and benefits received by the intermediary in the year in respect of the relevant engagements, and reduce that amount

The amount to be included under step 1 of the deemed payment calculation is the VAT exclusive amount whether or not the flat rate scheme is adopted. For the intermediary within the flat rate scheme in the example above the VAT exclusive amount would be £78,960. Irrecoverable VAT relating to allowable expenses met by the intermediary would be allowable as part of the expenses in the same way as if the intermediary was not VAT registered. For more information on IR35, see ESM3000 onwards.

A new Extra Statutory Concession (ESC C32) has been introduced that affects companies that fall within the IR35 legislation and which suffer CIS deductions. Where deductions under the CIS provisions exceed the corporation tax payable, a repayment of CIS tax may be set off against the tax and NIC liability on the deemed payment. Under ESC C32, companies can request a set-off of any overpayment of CIS tax against the tax and NICs in respect of a relevant deemed payment provided they have submitted

Paragraph 10(5) Schedule 12 Finance Act 2000/Section 55(5) ITEPA 2003 Regulation 4(4) SI 2000 No. 727 The income brought into account at Steps One and Two of the deemed payment calculation is based upon the amount received in the tax year. The definition of “received” is narrower than under the normal Employment Income rules, see EIM42210. This is to exclude money where an invoice has been sent and the amount in question has not been received because the client is a slow payer.

vehicle falling within subsection (5) if— a the worker had been employed by the client, and b the vehicle had not been a company vehicle (within the meaning of Chapter 2 of Part 4). 5 A vehicle falls within this subsection if— a it is provided by the intermediary for the worker, or b where the intermediary is a partnership and the worker is a member of the partnership, it is provided by the worker for the purposes of the business of the partnership. 6 Where, on the assumptions mentioned in parag