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

Deductions from chain payments

Section 61S allows the fee-payer in an off-payroll working arrangement to deduct amounts already paid to HMRC for income tax and NICs from the chain payment they make, and permits other persons in the chain to pass that same deduction through.

• The fee-payer (the person treated as making the deemed direct payment) may deduct from the underlying chain payment an amount equal to the tax and NICs paid to HMRC under PAYE regulations.
• Where the deemed direct payment has already been grossed up to reflect employer costs under PAYE, the deduction is limited to the difference (if any) between the amount payable to HMRC and the amount of that gross-up.
• Any other person in the contractual chain between the fee-payer and the intermediary who receives a reduced chain payment may pass on the same deduction when making their own chain payment further down the chain.
• This deduction mechanism does not apply where the services-provider (the worker's own company) is itself treated as making the deemed direct payment because fraudulent information was provided.