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

Calculation of deemed direct payment

Section 61Q sets out the four-step calculation used to determine the amount of the deemed direct payment that is treated as employment income of the worker providing services through an intermediary to a public sector client.

• The calculation starts with the chain payment amount (excluding VAT), then deducts the direct cost of materials used in performing the services
• An optional further deduction is available for expenses the intermediary has met that would have been allowable had the worker been directly employed by the client
• If the result after all deductions is nil or negative, no deemed direct payment arises; otherwise the remaining figure is the deemed direct payment subject to PAYE
• Anti-avoidance rules ensure the starting chain payment figure is not artificially reduced by passing on the cost of PAYE and National Insurance through a lower payment, and certain LLP salaried member income is excluded from the calculation