ESM3181 – How to account for the deemed payment
Paragraph 2 Schedule 12 Finance Act 2000/Section 50 ITEPA 2003
Regulation 8(1) SI 2000 No.727
Where the legislation applies the intermediary is treated as
making a payment to the worker which is chargeable to income tax
under Schedule E/as employment income and subject to Class 1 NICs.
This payment is called a deemed payment and is normally treated as
paid on 5 April (see
ESM3183 for exceptions).
Income received in respect of all relevant engagements is
added together and a single deemed payment is treated as made.
For tax purposes, the worker is treated as an employee of
the intermediary. The deemed payment is treated as income from that
employment and taxed accordingly. It should be returned on the
worker’s self-assessment tax return on the employment page
for that employment, included with any other salary or wages paid
in the normal way.
It should also be returned as such on any other forms,
including forms P45, P60, or P35. It should be included in the
total income from the employment and not shown separately. The
usual forms should be used: the form P35 now includes a tick box to
record the fact that a deemed payment has been included within the
amount returned.
For NICs purposes, the deemed payment should be aggregated
with any other earnings paid to the worker by the intermediary in
the year which are derived from employed earner’s employment.
The amount of Class 1 NICs payable in respect of that aggregate
amount should be calculated using an annual earnings period
prescribed in regulation 8 of the Social Security (Contributions)
Regulations 2001, irrespective of whether the worker is a director
of the company in the tax year. Where the provisions of the
Intermediaries Regulations apply to the worker from the beginning
of the tax year, the worker will have an annual earnings period by
virtue of regulation 8(3) of the Contributions Regulations. Where a
later date applies the worker is prescribed a pro-rata earnings
period by virtue of regulation 8(2) of those regulations.
