ESM10029 | off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: how to calculate the deemed payment – example

Section 61Q Chapter 10, Part 2 ITEPA 2003

Regulation 17 Social Security Contributions (Intermediaries) Regulations 2000

Philip provides his services through a PSC, Philip Ltd. The PSC has accepted a contract from a medium/large-sized client to supply Philip’s services for twelve months. Philip starts work on 1 May 2021.

The client knows that, from 6 April 2021, changes have been introduced for people working off-payroll for medium and large non-public sector clients. The client provides a Status Determination Statement (SDS) to Philip stating that his services fall within these new rules and as a result, it will deduct tax and NICs from the amounts Philip Ltd invoices each month.

Philip Ltd sends the client an invoice for £7,200 each month as the agreed charge, which includes VAT (£1,200). During the engagement Philip incurs expenses of £350 per month, the cost of which is met by his PSC. £100 of these expenses is for commuting to his permanent workplace for the engagement which is not allowable, so Philip can only have a deduction of £250 in the deemed payment calculation. This is the amount of expenses which would be allowable if Philip were employed by the deemed employer. Philip also provides materials necessary to the performance of the contract via his intermediary at a cost of £750 per month.

Step One

Identify the amount of the chain payment net of VAT £6,000

Step Two

Deduct direct cost of any materials (£750)

Step Three

Deduct eligible expenses (£250)

Step Four

The deemed direct payment £5,000

The deemed direct payment will be chargeable to PAYE and NICs on a monthly basis in the same way as a direct employee, and the normal Real Time Information processes should be followed. Further guidance on this process can be found at https://www.gov.uk/paye-for-employers. See ESM10019 for guidance on operating PAYE.

In situations where work was done prior to 6 April 2021 but paid for after that date it could be subject to the transitional provisions (see ESM10001A).