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 拢60,000 during the year of which:

  • 拢40,000 is in respect of relevant engagements and
  • 拢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 拢20,000
  • the employer鈥檚 NICs on the salary is 拢1,905
  • employer鈥檚 pension contributions of 拢4,000
  • travel costs relating to relevant engagements 拢500

The deemed payment is calculated as follows:

*Step 6 - calculated by using salary paid in year, less the annual earnings threshold for secondary Class 1 NICs, multiplied by 15%. 2025-26 rates used in example.

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鈥檚 NICs paid in year

2250*

-

Step Seven

Salary paid in year

20,000

-

-

Total deductions

28,750

-

-

Net amount

-

11,250

Step Eight

Employer鈥檚 NICs on deemed payment

-

1,468

Step Nine

Deemed payment

-

9782