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.