Chain liability: avoid paying someone else's taxes

No entrepreneur wants to pay someone else's taxes. But do you ever hire another company to do part of your job, or borrow an employee from another company? Then you run that risk. If such a company fails to pay payroll tax or VAT, you could be held liable. This is called chain liability. Read how to deal with chain liability and how a G account can help.

Chain liability can have unpleasant consequences for your business. Make sure you know when you might have to deal with this and how to minimise the risks. For example, by taking out a G account.

What is chain liability?

Chain liability can arise if you contract another company to do part of your job. If that company then also hires another company to do part of the work. a 'chain' of companies is created. The person who has contracted the people working in this chain, must pay payroll taxes to the Netherlands Tax Administration. If this is not done, the Tax Administration can hold any company in the chain involved in the work liable for (in Dutch) these costs. This is called chain liability. More principals may be liable at the same time in such a case. 

Hirer's liability is a special form of chain liability. You, the hirer, borrow an employee from another employer, the lender. This employee then works under your direction and supervision. Hirer's liability occurs mainly in secondment and agency work. 

If the lender fails to pay the due payroll tax and VAT to the Tax Administration, they may hold you, the hirer, liable for this (in Dutch).

Chain liability

Chain liability proceeds from the client via the (main) contractor to the subcontractor(s).

Hirer's liability starts at the lender (often a temp agency) and proceeds via the hirer (or posting agency) to the final hirer.

When do you face chain liability?

Chain liability is common in the construction industry. For example, if you as the main contractor hire a subcontractor and if that subcontractor also hires another company.

But chain liability also occurs in other situations and industries. Examples include contract work in agriculture or making clothes. It must be related to work that makes something tangible, a physical product. Work that does not produce a physical result, such as consultancy work, is not covered by chain liability. 

What is a G account and how do you open one?

A G account is a blocked bank account specifically for depositing payroll taxes and VAT to be paid to the Tax Administration. You request a G account from the Netherlands Tax Administration.

If they grant your request, they will draw up a G account agreement and send it to you by post. Within a month, you should then ask your bank if they will also agree to open the G account. If your bank agrees, you and the bank must sign the G account agreement and send it back to the Tax Administration. 

Do you face chain liability as a self-employed professional (zzp'er)?

A self-employed professional (zzp’er) has no staff, pays no payroll tax, and is therefore not liable in the chain. A self-employed professional must self-declare their earnings to the Tax Administration. A contractor who hires a self-employed professional to perform a task does not have to pay payroll tax for them. 

Note that, as a zzp’er, you may face chain liability if: 

  • you yourself contract another company to carry out the assigned work, and this company brings in personnel to do it. 
  • you hire someone from an employment agency. 

You could then be liable as a self-employed professional if the company or agency that has been brought in fails to pay the payroll tax or the VAT that is due. In this case, you can apply for a G account as a self-employed professional. Zzp'ers in the garnment idnustry may also apply for a G account. As a self-employed professional , you cannot use a G account in any other cases.  

How do you minimise the risks?

You can do the following to mitigate the risks of chain and hirer's liability: 

  • Ask the subcontractor or the supplier of the personnel for a declaration of payment history for chain liability (pdf, in Dutch), and a declaration of payment history for hirer's liability (pdf, in Dutch). These declarations indicate that the subcontractor or the supplier has paid all payroll taxes (and VAT) at that time. That way, you know that the subcontractor or lender has managed their affairs as they should up to now. 
  • Keep good records yourself of the amount of wages, payroll tax, and VAT owed by the subcontractor. Generally speaking, you should always have a good record-keeping system
  • When paying the subcontractor's or the supplier’s invoice, immediately transfer part of the amount to the subcontractor's or supplier's G account. You agree with the subcontractor or supplier what amount is to go to the G account. This amount should be approximately equal to the payroll tax and VAT due. The subcontractor or supplier can then pay payroll tax (and VAT) to the Tax Administration from this account. 

Chain liability decision tree

Take the check (in Dutch) and find out whether you are subject to chain liability. 
Note that separate rules apply to self-employed professionals (in Dutch). 

Hirer's liability decision tree

Take the check (in Dutch) and find out whether you face hirer’s liability. 
Note that, here too, separate rules apply to self-employed professionals (in Dutch).