Income Tax (Earnings and Pensions) Act 2003 section 61E

Calculation of deemed employment payment

Section 61E sets out how to calculate the deemed employment payment that arises when a worker provides services through a managed service company (MSC).

• The starting point is the amount of any payment or benefit received by the worker in connection with services provided via the MSC, other than earnings received directly from the MSC as employment income.
• Allowable expenses incurred by the worker — those that would have been deductible had the worker been directly employed by the client — are subtracted; if the result is nil or negative, no deemed payment arises.
• The remaining figure is treated as including employer's National Insurance contributions (NICs), and the employer's NICs element is stripped out to arrive at the deemed employment payment on which tax and employee's NICs are due.
• Where only part of a payment or benefit relates to the relevant services, a just and reasonable apportionment must be made; mileage allowance relief and partnership expenses may also be deducted in appropriate circumstances.