This illustrates the case of an on-going business where:
Mr and Mrs B carry on business in partnership and make up their
accounts to 30 September each year. They split profits equally but
Mr B performs the services. Relief for the deemed payment is given
in the accounting period in which it arises.
Partnership accounts show the following figures:
| Year ended | 30.9.2001 | 30.9.2002 |
| Income | 25,000 | 30,000 |
| Expenses | 5,000 | 6,000 |
| Profit | 20,000 | 24,000 |
| Mr B | 10,000 | 12,000 |
| Mrs B | 10,000 | 12,000 |
| Year ended | 5.4.2001 | 5.4.2002 | 5.4.2003 | |
| Step One | Income | 27,500 | 33,000 | 40,000 |
| Deduct | ||||
| Step One | 5% flat rate allowance | 1,375 | 1,650 | 2,000 |
| Step Three | Employment Income expenses | 3,000 | 4,000 | 5,000 |
| 4,375 | 5,650 | 7,000 | ||
| Net | 23,125 | 27,350 | 33,000 | |
| Step Eight | Secondary Class 1 NICs | 2,038 | 2,498 | 3,112 |
| Step Nine | Deemed payment | 21,087 | 24,852 | 29,888 |
Revised profit year ended 30.9.2001
| Partnership profit | 20,000 | |
| Add Disallowed expenses* | 625 | |
| Total | 20,625 | |
| Deduct Secondary Class 1
NICs on deemed
Payment Deemed Payment | 2,038
21,087 |
|
| Total deductions | 23,125 | 20,625+ |
| Taxable Trading Income profit | 0 |
* The disallowed expenses are based on the excess of the Trading
Income expenses over the sum of the Employment Income expenses and
5% allowance (5,000 - (3,000+1,375)).
+The sum of the deemed payment and secondary Class 1 NICs
(21,087+2,038=23,125) is greater than the adjusted Trading Income
profit (20,625). Therefore, the deduction is limited to the amount
that reduces the taxable profit to nil.
Revised profit year ended 30.9.2002
| Partnership profit | 24,000 | |
| Add Disallowed expenses* | 350 | |
| Total | 24,350 | |
| Deduct Secondary Class 1
NICs on deemed
Payment Deemed payment | 2,498
24,852 |
|
| Total deductions | 27,350 | 24,350+ |
| Taxable Trading Income profit | 0 |
* The disallowed expenses are based on the excess of the Trading
Income expenses over the sum of the Employment Income expenses and
5% allowance (6,000 - (4,000+1,650)).
+The sum of the deemed payment and secondary Class 1 NICs is
greater than the adjusted Trading Income profit so the deduction is
limited to the amount that reduces the taxable profit to nil
(paragraph 18(2) Schedule 12 Finance Act 2000).
Overall tax position 2001/02
| Mr B | Mrs B | |
| Trading Income | 0 | 0 |
| Employment Income | 24,852 | 0 |
Overall tax position 2002/03
| Mr B | Mrs B | |
| Trading Income | 0 | 0 |
| Employment Income | 29,888 | 0 |
