The process of calculating an individual worker’s deemed employment payment (for income tax purposes) for a tax year is set out in ITEPA 2003, s. 54. The calculation uses an eight-step process. The rules specify the payments, etc. that are to be brought into account for the purposes of determining the amount that is to be subjected to income tax and NICs and the deductions permitted in relation to the intermediary’s expenditure. There are five types of specific permitted deductions:

a five per cent flat rate deduction (ITEPA 2003, s. 54(1), Step 1).

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