Regulation 17 Calculation of deemed direct earningsF1

(1)

The amount of the deemed direct earnings 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 earnings, 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 earnings, from the amount resulting from Step 2, so much of that amount as represents expenses met by the intermediary that under ITEPA 2003 would have been deductible from the taxable earnings of the employment under section 10 ITEPA 2003, in accordance with section 327(3) to (5) of that Act, if—

(a)

the worker had been employed by the client, and

(b)

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 are no deemed direct earnings. Otherwise, that amount is the amount of the deemed direct earnings.

(2)

For the purposes of Step 1 of paragraph (1), exclude amounts on which Class 1 or Class 1A contributions are payable by virtue of regulation 3 or 4 of the Social Security Contributions (Limited Liability Partnership) Regulations 2014.

(3)

In paragraph (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 regulation 19.

(4)

If the actual amount or value of the chain payment mentioned in Step 1 of paragraph (1) is such that its recipient bears the cost of amounts due under the Income Tax (Pay As You Earn) Regulations 2003 or the Contributions Regulations in respect of the deemed direct earnings, that Step applies as if the amount or value of the 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 paragraph (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)

The deemed direct earnings are to be assessed on the amount of such earnings paid, or treated as paid, in the earnings period specified in regulations 3 to 6 or 8 of the Contributions Regulations.

(7)

For the purposes of paragraph (6), the definition of “regular interval” in regulation 1(2) of the Contributions Regulations is to be read as if “employed earner” were replaced with “intermediary” and the words “of earnings” were deleted.

Annotations

Textual amendments

F1: Part 2 inserted (incorporating regs. 13-23) (6.4.2017) by The Social Security (Miscellaneous Amendments No. 2) Regulations 2017 (S.I. 2017/373), regs. 1, 2(13)

Notes on Part 2

Textual amendments

F2: Pt. 2 heading substituted (6.4.2021) by The Social Security Contributions (Intermediaries) (Miscellaneous Amendments) Regulations 2020 (S.I. 2020/1220), regs. 1(1)(3), 2(8)(a) (with reg. 5)