Glossary · UK
What is Deemed Employment Payment?
The amount treated as employment income when an engagement falls inside the IR35 or off-payroll rules.
Full Definition
A deemed employment payment is the figure that is treated as salary for tax purposes when a contract is caught by the IR35 rules. Where the older IR35 rules apply, because the client is small or based wholly overseas, the contractor's own company must work out this payment at the end of the tax year. The calculation starts with the income received from the relevant engagements, allows a flat 5% deduction for the cost of running the company, subtracts allowable expenses, pension contributions and any salary already paid, and treats the balance as employment income subject to Income Tax and National Insurance. For 2026/27 this means the deemed amount is taxed at the usual rates, with employee National Insurance of 8% and 2% and employer National Insurance at 15%. Under the newer off-payroll rules the principle is similar, but the fee payer deducts tax in real time rather than the worker's company calculating a year-end figure. The deemed payment ensures that income left inside a company after an inside-IR35 engagement does not escape employment taxes.