SolvedESM8150 | Basic principles: how to calculate the deemed payment: example using step by step guide
From HM Revenue & Customs · Employment Status Manual
Periods up to 5 April 2002
Mr C is a draughtsman in the aerospace industry who works through his own limited company, C Services Ltd. He provides services to Client Ltd under a contract, which falls within the legislation. Client Ltd pays £40,000 to C Services Ltd for the services provided by Mr C.
Mr C does no other work in the year and the service company:
pays him a salary of £4,000
provides him with a car, in respect of which the total running costs are £3,000 (car used 50% for business travel/ 50% for private use) and there is a benefit in kind of £2,000, and
makes pension contributions of £2,000.
(The capital allowances that Mr C could claim on the car after adjustment for private use are £1,500).
| Step | What to do | Box number | Amount |
|---|---|---|---|
| Step One | Enter in this box the amount of all payments and benefits received by the intermediary in that tax year in respect of the relevant engagement | 1 | 40,000 |
| Step One | Enter in this box 5% of the amount in box 1 | 2 | 2,000 |
| Step Two | Enter in this box the amount of any payments and benefits received directly by the worker and not otherwise chargeable to tax as general earnings in respect of the relevant engagement | 3 | 0 |
| Step Three | Enter in this box the amount of any expenses met by the intermediary, which could have been claimed as expenses against income tax if the worker had been an employee of the client and had paid for them himself. | 4 | 1,500 |
| Step Four | Enter in this box the amount of any capital allowances in respect of expenditure incurred by the intermediary that the worker could have claimed if employed by the client and he or she had incurred the expenditure | 5 | 1,500 |
| Step Five | Enter in this box the amount of any contributions to a registered pension scheme by the company for the benefit of the worker | 6 | 2,000 |
| Step Six | Enter in this box the amount of any secondary Class 1 and Class 1A NICs paid by the intermediary for that year in respect of salary or benefits in kind provided to the worker during the year | 7 | 366 |
| Step Seven | Enter in this box the amount of any salary and benefits in kind received by the worker from the intermediary which are already taxable as general earnings (this does not include anything for which a deduction has already been given at Step Three. | 8 | 6,000 |
| Step Seven | Add together the contents of boxes 1 and 3 and enter the sum in this box | 9 | 40,000 |
| Step Seven | Add together the contents of boxes 2, 4, 5, 6, 7, and 8 and enter the sum in this box | 10 | 13,366 |
| Step Seven | Deduct the contents of box 10 from the contents of box 9 and enter the answer in this box. If the answer is nil or a negative number there is no deemed payment. Where the answer is a positive number you will need to apportion the amount between the earnings payment and secondary Class 1 NICs using the stencil at ESM8220 | 11 | 26,634 |
| - | Enter the amount of secondary Class 1 NICs in this box | 12 | 2,854 |
| Step Eight | Deduct the amount in box 12 from the amount in box 11 and enter the amount you are left with in this box. This amount is the deemed earnings payment | 13 | 23,780 |