MSCs ― the deemed employment payment

Produced by a Tolley Employment Tax expert

Employment Tax

Guidance

Where the legislation on Managed Service Companies applies to a payment made to a worker, that worker is treated as receiving a deemed employment income payment, which is subject to PAYE and NICs. See the Managed service companies overview guidance note.

The calculation of the deemed employment income payment is based on the payment received by the worker in respect of the services he provides via the Managed Service Company (MSC). The calculation has to be repeated each time there is a payment to the worker that falls within the MSC rules.

The method for calculating the deemed employment payment is set out in the legislation as a 3–step method statement.

HMRC guidance on the calculation is at ESM3540.

Step One

The first step is to identify the payment or benefit which “can reasonably be taken to be in respect of the services”.

This includes any payment or benefit of any kind. A payment in this context includes the payment of a dividend.

It does not matter who has made the payment to the worker,

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