How does section 61G treat the deemed employment payment for tax purposes?

Section 61G treats the deemed employment payment as earnings from an employment between the worker and the managed service company. The Income Tax Acts and PAYE provisions apply as though the worker were an employee of the MSC, requiring the MSC to operate PAYE on the deemed payment just as any employer would on a salary payment.

Can a worker claim expense deductions against a deemed employment payment under section 61G?

No. Section 61G prohibits all deductions from the deemed employment payment. The normal employment expense rules under Part 5 of the Act do not apply, and mileage allowance relief under section 232 cannot be claimed. The full deemed employment payment amount is therefore subject to income tax without any reduction whatsoever.

What happens if the managed service company is a partnership and the worker is a partner?

Where the MSC is structured as a partnership and the worker is a member, the deemed employment payment is treated as the worker's personal income. It does not form part of the partnership's income and is not allocated through partnership profit-sharing arrangements, ensuring the payment is taxed directly on the worker as employment income.

Can an overseas MSC avoid PAYE obligations under section 61G?

No. Where the worker is resident in the United Kingdom and the relevant services are provided in the United Kingdom, section 61G treats the MSC as having a UK place of business regardless of its actual location. This ensures PAYE obligations cannot be avoided simply by locating the managed service company outside the UK.

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

Application of Income Tax Acts in relation to deemed employment

Section 61G sets out how the Income Tax Acts, particularly the PAYE rules, apply to the deemed employment payment arising under the managed service company (MSC) provisions.

The deemed employment payment is treated as earnings from an employment between the worker and the MSC, bringing it within the PAYE system
No deductions for employment expenses or mileage allowance relief are permitted against the deemed employment payment
Where the MSC is a partnership and the worker is a partner, the deemed employment payment is treated as personal income of the worker, not partnership income
Where the worker is UK-resident and the services are provided in the UK, the MSC is treated as having a UK place of business regardless of the actual position

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