ESM10027 - off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: how to calculate the amount of the chain payment

Section 61N Chapter 10, Part 2 ITEPA 2003

Regulation 14 Social Security Contributions (Intermediaries) Regulations 2000

A chain payment is defined, for tax purposes, as ‘A payment, money’s worth or any other benefit, that can reasonably be taken to be for the worker’s services to the client.’

For NICs purposes chain payment is defined as ‘A payment or money’s worth that can reasonably be taken to be for the worker’s services to the client.’

In practice, the chain payment is the value or amount of payment that flows from the highest person in the contractual chain to the lowest where the payment is for the worker’s services. In other words, payments for the worker’s services that start at the client and are then paid to each person in the contractual chain until they reach the worker’s intermediary.

Benefits will be subject to Class 1A NICs in the same way as for normal employees. Normal benefit calculation and reporting procedures should be applied.

The actual amount invoiced by the intermediary to the end client, or agency, may include fees for more than one worker. In these circumstances the fees must be apportioned between each worker on a reasonable basis.

EXAMPLE

Bravo Ltd provides the services of two workers, Samantha and Vaider, to an end client under a contract which is subject to the off-payroll working legislation. Bravo Ltd invoices the end client for an amount of £3,000 per month. Samantha’s services account for 67% of the invoiced amount and Vaider’s the remaining 33%.

In arriving at the correct chain payment for both Samantha and Vaider, the deemed employer must apportion the invoiced amount between the workers in the respective amounts to arrive at the amount which can reasonably be taken to be for their services;

Samantha – 67% of £3,000 (£2,000)

Vaider – 33% of £3,000 (£1,000)