Limited company directors and deemed payments

When a deemed payment arises

It arises where the original IR35 rules apply — typically an engagement with a small company client — and the engagement is inside IR35. The intermediary calculates it at the end of the tax year and accounts for PAYE on it.

Where the off-payroll rules apply instead, the fee-payer has already deducted PAYE and no deemed payment arises.

How it is calculated

• Start with the income from relevant engagements for the year.
• Deduct the flat 5% allowance, where it is still available to the engagement.
• Deduct allowable expenses, pension contributions made by the company, and salary already paid.
• What remains is the deemed payment, and employer’s National Insurance is calculated on it as well.

Interaction with dividends

Amounts taxed as a deemed payment can be paid out without a second charge, but the ordering matters and the relief has to be claimed correctly.

Getting this wrong usually means the same income is taxed twice, which is recoverable but only if it is noticed.

The deadline

The deemed payment is treated as made on 5 April, and PAYE on it is due by the following 22 April. It is easy to miss because no invoice prompts it.