ESM9065 - Basic principles: off-payroll working: how to calculate the amount of the chain payment
Section 61- Chapter 10 ITEPA 2003
Regulation 14(12) The Social Security (Miscellaneous Amendments No. 2) Regulations 2017
NOTE – This page only refers to payments made under contracts caught by the off-payroll working reform.
Section 61N- Chapter 10 ITEPA 2003
Regulation 14(12) The Social Security (Miscellaneous Amendments No. 2) Regulations 2017
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.”
The actual amount invoiced by the intermediary to the end client, or agency, may include other amounts representing VAT, materials, expenses etc. If more than one worker operates through the intermediary an invoiced amount may also cover the services of multiple workers. To arrive at the correct chain payment amount it is therefore necessary to strip out these other factors to arrive at the amount which represents what can “reasonably be taken to be for each of the worker’s services to the client”.
EXAMPLE
- Bravo Ltd provides the services of two workers, Samantha and Vaider, to an end client under a contract which is caught by 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%. Bravo Ltd is not registered for VAT.
In arriving at the correct chain payment for both Samantha and Vaider, the end client 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)
- Charm Ltd provides the services of Sanet to an end client under a contract which is caught by the off-payroll working legislation. Charm Ltd invoices the client for an amount of £6,000 per month which is made up of;
- £3,000 for Sanet’s services
- £1,500 for materials whose cost is met directly by Charm Ltd
- £500 allowable expenses
- £1,000 VAT
In arriving at the correct chain payment for Sanet the end client must apportion the invoiced amount between the amount in respect of Sanet’s services to the client and anything else. The amount of the chain payment will therefore be £3,000.
NOTE – If the end client takes the full amount (£6,000) into Step One of the Deemed Direct Payment calculation, by applying the steps that strip out the VAT, expenses and materials it will still produce the same end figure (£3,000) which is for the workers services to the end client.