Part 2

Employment income: charge to tax
CHAPTER 10

Workers' services provided through intermediaries to public authorities or medium or large clients

Calculation of deemed direct payment
61Q
1
The amount of the deemed direct payment is the amount resulting from the following steps—
- Step 1
Identify the amount or value of the chain payment made by the person who is treated as making the deemed direct payment, and deduct from that amount so much of it (if any) as is in respect of value added tax.
- Step 2
Deduct, from the amount resulting from Step 1, so much of that amount as represents the direct cost to the intermediary of materials used, or to be used, in the performance of the services.
- Step 3
Deduct, at the option of the person treated as making the deemed direct payment, from the amount resulting from Step 2, so much of that amount as represents expenses met by the intermediary that would have been deductible from the taxable earnings from the employment if—
  1. the worker had been employed by the client, and
  2. the expenses had been met by the worker out of those earnings.
- Step 4
If the amount resulting from the preceding Steps is nil or negative, there is no deemed direct payment. Otherwise, that amount is the amount of the deemed direct payment.
2
For the purposes of Step 1 of subsection (1), any part of the amount or value of the chain payment which is employment income of the worker by virtue of section 863G(4) of
ITTOIA
2005 (salaried members of limited liability partnerships: anti-avoidance) is to be ignored.
3
In subsection (1), the reference to the amount or value of the chain payment means the amount or value of that payment before the deduction (if any) permitted under section 61S.
4
If the actual amount or value of the chain payment mentioned in Step 1 of subsection (1) is such that its recipient bears the cost of amounts due under
PAYE
regulations or contributions regulations in respect of the deemed direct payment, that Step applies as if the amount or value of that chain payment were what it would be if the burden of that cost were not being passed on through the setting of the level of the payment.
5
In Step 3 of subsection (1), the reference to expenses met by the intermediary includes—
a
expenses met by the worker and reimbursed by the intermediary, and
b
where the intermediary is a partnership and the worker is a member of the partnership, expenses met by the worker for and on behalf of the partnership.
6
In subsection (4) “
contributions regulations
” means regulations under the Contributions and Benefits Act providing for primary Class 1 contributions to be paid in a similar manner to income tax in relation to which
PAYE
regulations have effect (see, in particular, paragraph 6(1) of Schedule 1 to the Act); and here “
primary Class 1 contribution
” means a primary Class 1 contribution within the meaning of Part 1 of the Contributions and Benefits Act.
Pt. 2 applied (E.W.S.) (31.3.2017) by The Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017 (S.I. 2017/353), reg. 1(1), Sch. 1 para. 4(3) (with reg. 2(4)(5))
Pt. 2 Ch. 10 inserted (with effect in accordance with Sch. 1 para. 16 of the amending Act) by Finance Act 2017 (c. 10), Sch. 1 para. 9
Pt. 2 applied (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), ss. 969(4)(a), 1329(1) (with Sch. 2 Pts. 1, 2)
Pt. 2 Ch. 10 heading substituted (with effect in accordance with Sch. 1 para. 25 of the amending Act) by Finance Act 2020 (c. 14), Sch. 1 para. 8 (with Sch. 1 paras. 30-34)