This illustrates the case where a partnership’s accounts
are made up to 5 April and all income is derived from relevant
engagements.
Mr and Mrs I carry on business in partnership and make up
their accounts to 5 April 2001. All the partnership’s income
is derived from “relevant engagements”. Profits are
split equally but Mrs I performs the services. Of the
partnership’s expenses, only £2,000 of the £5,000
would be allowable under Employment Income rules.
Partnership Accounts year ended 5 April 2001
| Income | 25,000 |
| Expenses | 5,000 |
| Profit | 20,000 |
Allocated Mrs I 10,000 and Mr I 10,000
Calculation of deemed payment on 5 April 2001
| Step One | Income from relevant engagements | 25,000 | |
|
| Deduct | ||
| Step One | 5% flat rate allowance | 1,250 | |
| Step Three | Employment Income expenses | 2,000 | |
| Total Deductions | 3,250 | 3,250 | |
| Net | 21,750 | ||
| Step Eight | Secondary Class 1 NICs on deemed payment | 1,888 | |
| Step Nine | Deemed payment | 19,862 |
| Partnership profit | 20,000 |
| Add Disallowed expenses* | 1,750 |
| Total | 21,750 |
| Deduct Secondary Class 1 NICs on deemed payment | 1,888 |
| Deemed payment | 19,862 |
| 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 - (2,000+1,250)).
Overall position for 2000/01
Mrs I’s 2000/01 deemed payment is £19,862. She
will pay tax chargeable on Employment Income and primary Class 1
NICs based on this amount.
For the purposes of the deemed payment Mrs I is treated as
employed by the partnership. For NICs purposes, the partnership is
treated as the secondary contributor and liable to pay secondary
Class 1 NICs on the amount of the deemed payment.
There is no taxable Trading Income profit.
