Step one is to take all payments and other benefits received by the intermediary in that year from engagements which are within IR35, and then deduct 5%.
The 5% is a purely notional figure intended to cover administrative and similar expenses. It is given automatically irrespective of actual costs incurred. This aspect of the provisions has been much criticised, on the basis that it does not give tax relief for training and similar expenses. Other than this 5% deduction, no other deduction for expenses is permitted apart from the restricted amounts at steps three and four. It should be noted that the 5% deduction is only relevant for the purposes of the deemed calculation; it cannot be deducted when working out the intermediary's taxable profits.
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