IR35 Rules - Finance Act 2000

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Calculating the deemed Schedule E payment:

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Step 4:

Deduct the amount of any capital allowances in respect of expenditure incurred by the intermediary that could have been claimed by the worker under section 27 of the Capital Allowances Act 1990 (plant and machinery: extension of allowances to employments etc.) if the worker had been employed by the client and had incurred the expenditure.

Step 5:

Deduct any contributions made in that year for the benefit of the worker by the intermediary to a scheme approved under Chapter I or Chapter IV of Part XIV of the Taxes Act 1988 that if made by an employer for the benefit of an employee would not be chargeable to income tax as income of the employee.

Step 6:

Deduct the amount of any employer's national insurance contributions paid by the intermediary for that year in respect of the worker.

Step 7:

Deduct the amount of any payments or other benefits received in that year by the worker from the intermediary in respect of which the worker is chargeable to income tax under Schedule E, and which do not represent items in respect of which a deduction was made under Step Three. If the result at this point is nil or a negative amount, there is no deemed Schedule E payment.

Step 8:

Find the amount that together with employer's national insurance contributions on it is equal to the amount resulting from Step Seven. The result is the amount of the deemed Schedule E payment.

Responsibility for the deemed Schedule E payment:

If an engagement is deemed to be caught by the rules, it is the responsibility of the intermediary to account for the deemed Schedule E payment and the associated tax and NIC.

Summary:

The above is a summary of the rules. As you can see, for an engagement not to be caught by the rules it must be possible to demonstrate that the arrangements would NOT amount to employment if the intermediary did not exist. For help on how you can demonstrate that your arrangements do not amount to employment, please see our "Beat IR35" section.

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