Deduct any contributions made in the year for the benefit of the worker by the
intermediary to a scheme approved under Chapter 1 or 4 of Part 14 of ICTA
that if made by an employer for the benefit of an employee would not be
chargeable to income tax as income of the employee.
This does not apply to excess contributions made and later repaid.
Deduct the amount of any employer’s national insurance contributions paid by
the intermediary for the year in respect of the worker.
Deduct the amount of any payments and benefits received in the year by the
worker from the intermediary—
(a) in respect of which the worker is chargeable to income tax as
employment income, and
(b) which do not represent items in respect of which a deduction was made
under step 3.
Assume that the result of step 7 represents an amount together with
employer’s national insurance contributions on it, and deduct what (on that
assumption) would be the amount of those contributions.
The result is the deemed employment payment.
(2) If section 559 of ICTA applies (sub-contractors in the construction industry:
payments to be made under deduction), the intermediary is treated for the
purposes of step 1 of subsection (1) as receiving the amount that would have
been received had no deduction been made under that section.
(3) In step 3 of subsection (1), the reference to expenses met by the intermediary
(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
(4) In step 3 of subsection (1), the expenses deductible include the amount of any
mileage allowance relief for the year which the worker would have been
entitled to in respect of the use of a vehicle falling within subsection (5) if—
(a) the worker had been employed by the client, and
(b) the vehicle had not been a company vehicle (within the meaning of
Chapter 2 of Part 4).
(5) A vehicle falls within this subsection if—
(a) it is provided by the intermediary for the worker, or
(b) where the intermediary is a partnership and the worker is a member of
the partnership, it is provided by the worker for the purposes of the
business of the partnership.
(6) Where, on the assumptions mentioned in paragraphs (a) and (b) of step 3 of
subsection (1), the deductibility of the expenses is determined under sections
337 to 342 (travel expenses), the duties performed under the relevant
engagements are treated as duties of a continuous employment with the
(7) In step 7 of subsection (1), the amounts deductible include any payments
received in the year from the intermediary that—
(a) are exempt from income tax by virtue section 229 or 233 (mileage
allowance payments and passenger payments), and
(b) do not represent items in respect of which a deduction was made under
(8) For the purposes of subsection (1) any necessary apportionment is to be made
on a just and reasonable basis of amounts received by the intermediary that are
(a) to the services of more than one worker, or
(b) partly to the services of the worker and partly to other matters.
55 Application of rules relating to earnings from employment
(1) The following provisions apply in relation to the calculation of the deemed
(2) A “payment or benefit” means anything that, if received by an employee for
performing the duties of an employment, would be earnings from the
(3) The amount of a payment or benefit is taken to be—
(a) in the case of a payment or cash benefit, the amount received, and
(b) in the case of a non-cash benefit, the cash equivalent of the benefit.
(4) The cash equivalent of a non-cash benefit is taken to be—
(a) the amount that would be earnings if the benefit were earnings from an
(b) in the case of living accommodation, whichever is the greater of that
amount and the cash equivalent determined in accordance with section
(5) A payment or benefit is treated as received—
(a) in the case of a payment or cash benefit, when payment is made of or
on account of the payment or benefit;
(b) in the case of a non-cash benefit that is calculated by reference to a
period within the tax year, at the end of that period,
(c) in the case of a non-cash benefit that is not so calculated, when it would
have been treated as received for the purposes of Chapter 4 or 5 of this
Part (see section 19 or 32) if—
(i) the worker had been an employee, and
(ii) the benefit had been provided by reason of the employment.
56 Application of Income Tax Acts in relation to deemed employment
(1) The Income Tax Acts (in particular, the PAYE provisions) apply in relation to
the deemed employment payment as follows.
(2) They apply as if—
(a) the worker were employed by the intermediary, and
(b) the relevant engagements were undertaken by the worker in the course
of performing the duties of that employment.
(3) The deemed employment payment is treated in particular—
(a) as taxable earnings from the employment for the purpose of securing
that any deductions under Chapters 2 to 6 of Part 5 do not exceed the
deemed employment payment; and
(b) as taxable earnings from the employment for the purposes of section
(4) The worker is not chargeable to tax in respect of the deemed employment
payment if, or to the extent that, by reason of any combination of the factors
mentioned in subsection (5), the worker would not be chargeable to tax if—
(a) the client employed the worker,
(b) the worker performed the services in the course of that employment,
(c) the deemed employment payment were a payment by the client of
earnings from that employment.
(5) The factors are—
(a) the worker being resident, ordinarily resident or domiciled outside the
(b) the client being resident or ordinarily resident outside the United
(c) the services in question being provided outside the United Kingdom.
(6) Where the intermediary is a partnership or unincorporated association, the
deemed employment payment is treated as received by the worker in the
worker’s personal capacity and not as income of the partnership or association.
(a) the worker is resident in the United Kingdom,
(b) the services in question are provided in the United Kingdom, and
(c) the client or employer carries on business in the United Kingdom,
the intermediary is treated as having a place of business in the United
Kingdom, whether or not it in fact does so.
(8) The deemed employment payment is treated as relevant earnings of the
worker for the purposes of section 644 of ICTA (relevant earnings for purposes
of permissible pension contributions).
57 Earlier date of deemed employment payment in certain cases
(1) If in any tax year—
(a) a deemed employment payment is treated as made, and
(b) before the date on which the payment would be treated as made under
section 50(2) any relevant event (as defined below) occurs in relation to
the deemed employment payment for that year is treated as having been made
immediately before that event or, if there is more than one, immediately before
the first of them.
(2) Where the intermediary is a company the following are relevant events—
(a) the company ceasing to trade;
(b) where the worker is a member of the company, the worker ceasing to
be such a member;
(c) where the worker holds an office with the company, the worker ceasing
to hold such an office;
(d) where the worker is employed by the company, the worker ceasing to
be so employed.
(3) Where the intermediary is a partnership the following are relevant events—
(a) the dissolution of the partnership or the partnership ceasing to trade or
a partner ceasing to act as such;
(b) where the worker is employed by the partnership, the worker ceasing
to be so employed.
(4) Where the intermediary is an individual and the worker is employed by the
intermediary, it is a relevant event if the worker ceases to be so employed.
(5) The fact that the deemed employment payment is treated as made before the
end of the tax year does not affect what receipts and other matters are taken
into account in calculating its amount.
58 Relief in case of distributions by intermediary
(1) A claim for relief may be made under this section where the intermediary—
(a) is a company,
(b) is treated as making a deemed employment payment in any tax year,
(c) either in that tax year (whether before or after that payment is treated
as made), or in a subsequent tax year, makes a distribution (a “relevant
(2) A claim for relief under this section must be made—
(a) by the intermediary by notice to the Inland Revenue, and
(b) within 5 years after the 31st January following the tax year in which the
distribution is made.
(3) If on a claim being made the Inland Revenue are satisfied that relief should be
given in order to avoid a double charge to tax, they must direct the giving of
such relief by way of amending any assessment, by discharge or repayment of
tax, or otherwise, as appears to them appropriate
(4) Relief under this section is given by setting the amount of the deemed
employment payment against the relevant distribution so as to reduce the
(5) In the case of more than one relevant distribution, the Inland Revenue must
exercise the power conferred by this section so as to secure that so far as
practicable relief is given by setting the amount of a deemed employment
(a) against relevant distributions of the same tax year before those of other
(b) against relevant distributions received by the worker before those
received by another person, and
(c) against relevant distributions of earlier years before those of later years.
(6) Where the amount of a relevant distribution is reduced under this section, the
amount of any associated tax credit is reduced accordingly.
59 Provisions applicable to multiple intermediaries
(1) The provisions of this section apply where in the case of an engagement to
which this Chapter applies the arrangements involve more than one relevant
(2) All relevant intermediaries in relation to the engagement are jointly and
severally liable, subject to subsection (3), to account for any amount required
under the PAYE provisions to be deducted from a deemed employment
payment treated as made by any of them—
(a) in respect of that engagement, or
(b) in respect of that engagement together with other engagements.
(3) An intermediary is not so liable if it has not received any payment or benefit in
respect of that engagement or any such other engagement as is mentioned in
(4) Subsection (5) applies where a payment or benefit has been made or provided,
directly or indirectly, from one relevant intermediary to another in respect of
(5) In that case, the amount taken into account in relation to any intermediary in
step 1 or step 2 of section 54(1) is reduced to such extent as is necessary to avoid
double-counting having regard to the amount so taken into account in relation
to any other intermediary.
(6) Except as provided by subsections (2) to (5), the provisions of this Chapter
apply separately in relation to each relevant intermediary
(7) In this section “relevant intermediary” means an intermediary in relation to
which the conditions specified in section 51, 52 or 53 are met.
60 Meaning of “associate”
(1) In this Chapter “associate”—
(a) in relation to an individual, has the meaning given by section 417(3)
and (4) of ICTA, subject to the following provisions of this section;
(b) in relation to a company, means a person connected with the company;
(c) in relation to a partnership, means any associate of a member of the
(2) Where an individual has an interest in shares or obligations of the company as
a beneficiary of an employee benefit trust, the trustees are not regarded as
associates of the individual by reason only of that interest except in the
(3) The exception is where—
(a) the individual, either alone or with any one or more associates of the
(b) any associate of the individual, with or without other such associates,
has at any time on or after 14th March 1989 been the beneficial owner of, or able
(directly or through the medium of other companies or by any other indirect
means) to control more than 5% of the ordinary share capital of the company.
(4) In subsection (3) “associate” does not include the trustees of an employee
benefit trust as a result only of the individual’s having an interest in shares or
obligations of the trust.
(5) Sections 549 to 554 (attribution of interests in companies to beneficiaries of
employee benefit trusts) apply for the purposes of subsection (3) as they apply
for the purposes of the provisions listed in section 549(2).
(6) In this section “employee benefit trust” has the meaning given by sections 550
(1) In this Chapter—
“associate” has the meaning given by section 60;
“associated company” has the meaning given by section 416 of ICTA;
“business” means any trade, profession or vocation and includes a
Schedule A business;
“company” means a body corporate or unincorporated association, and
does not include a partnership;
“employer’s national insurance contributions” means secondary Class 1
or Class 1A national insurance contributions;
“engagement to which this Chapter applies” has the meaning given by
“national insurance contributions” means contributions under Part 1 of
SSCBA 1992 or Part 1 of SSCB(NI)A 1992;
“PAYE provisions” means the provisions of Part 11 or PAYE regulations;
“the relevant engagements” has the meaning given by section 50(4).
(2) References in this Chapter to payments or benefits received or receivable from
a partnership or unincorporated association include payments or benefits to
which a person is or may be entitled in the person’s capacity as a member of
the partnership or association.
(3) For the purposes of this Chapter—
(a) anything done by or in relation to an associate of an intermediary is
treated as done by or in relation to the intermediary, and
(b) a payment or other benefit provided to a member of an individual’s
family or household is treated as provided to the individual.
(4) For the purposes of this Chapter a man and a woman living together as
husband and wife are treated as if they were married to each other.
Employment income: earnings and benefits etc. treated as earnings
(1) This section explains what is meant by “earnings” in the employment income
(2) In those Parts “earnings”, in relation to an employment, means—
(a) any salary, wages or fee,
(b) any gratuity or other profit or incidental benefit of any kind obtained
by the employee if it is money or money’s worth, or
(c) anything else that constitutes an emolument of the employment.
(3) For the purposes of subsection (2) “money’s worth” means something that is—
(a) of direct monetary value to the employee, or
(b) capable of being converted into money or something of direct monetary
value to the employee.
(4) Subsection (1) does not affect the operation of statutory provisions that provide
for amounts to be treated as earnings (and see section 721(7)).
Taxable benefits: the benefits code
The benefits code
63 The benefits code
(1) In the employment income Parts “the benefits code” means—
Chapter 3 (expenses payments),
Chapter 4 (vouchers and credit-tokens),
Chapter 5 (living accommodation),
Chapter 6 (cars, vans and related benefits),
Chapter 7 (loans),
Chapter 8 (notional loans in respect of acquisitions of shares),
Chapter 9 (disposals of shares for more than market value),
Chapter 10 (residual liability to charge), and
Chapter 11 (exclusion of lower-paid employments from parts of benefits
(2) If an employment is an excluded employment, the general effect of section
216(1) (provisions not applicable to lower-paid employments) is that only the
following Chapters apply to the employment—