ESM9030 - Basic principles: off-payroll working: what happens when there is a payment from a relevant engagement on or after 6 April 2017 – example

On 1 May 2017 a public authority hires a worker via their intermediary, Alpha Ltd, on a six month contract. The off-payroll intermediaries legislation applies. The public authority agrees to pay Alpha Ltd £60,000, plus VAT over the course of the contract. The payments to Alpha Ltd are fixed monthly amounts of £10,000 plus VAT of £2,000.

Having applied the off-payroll intermediaries legislation at Chapter 10 ITEPA 2003 the public authority is the fee-payer and is therefore responsible for operating PAYE and paying Class 1 NICs to HMRC.

Each month Alpha Ltd invoices the public authority for £12,000.

The public authority treats £10,000 as payment for the workers services and £2,000 as VAT. They deduct £3,000 tax and £480 employee NICs which it pays to HMRC via RTI along with £1,250 employer NICs.

Over the course of the contract the public authority will pay;

  • £39,120 to Alpha Ltd (exclusive of VAT)
  • £18,000 income tax, £2,880 employee NICs and £7,500 employer NICs to HMRC via RTI
  • £12,000 VAT to Alpha Ltd

The monthly payments to Alpha Ltd are the chain payments.

The following page explains who the fee-payer will be in longer contractual chains.