ESM8170 - Basic principles: how to work out the deemed employment payment where the intermediary has income that is not from relevant engagements - example

Mr F works through a service company, F Services Ltd, in which he owns all of the shares. F Services Ltd receives £60,000 during the year of which:

• £40,000 is in respect of relevant engagements and
• £20,000 from other business activities which do not fall within the rules.

F Services Ltd incurs the following expenses during the course of the year:

• Mr F is paid a salary of £20,000
• the employer’s NICs on the salary is £1,905
• employer’s pension contributions of £4,000
• travel costs relating to relevant engagements £500

The deemed payment is calculated as follows:

Step	-	Amount	Amount
Step One	Income from relevant engagements	-	40,000
-	Deduct	-	-
Step One	5% flat rate allowance	2,000	-
Step Three	Expenses	500	-
Step Five	Pension contributions	4,000	-
Step Six	Employer’s NICs paid in year	1,905	-
Step Seven	Salary paid in year	20,000	-
-	Total deductions	28,405	28,405
-	Net amount	-	11,595
Step Eight	Employer’s NICs on deemed payment	-	1,261
Step Nine	Deemed payment	-	10,334