This illustrates the case where a partnership’s accounts
are made up to 5 April and all income is derived from relevant
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
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|
|Step One||5% flat rate allowance||1,250|
|Step Three||Employment Income expenses||2,000|
|Step Eight||Secondary Class 1 NICs on deemed payment||1,888|
|Step Nine||Deemed payment||19,862|
|Add Disallowed expenses*||1,750|
|Deduct Secondary Class 1 NICs on deemed payment||1,888|
|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.