Chain liability: avoid paying someone else's taxes

• What is chain liability?
• What is hirer's liability?
• In what sectors does chain liability occur? 
• What is a G account?
• How do you open a G account?
• Do you face chain liability as a self-employed professional (zzp’er)?
• How do you minimise the risks?
• Chain liability decision tree
• Hirer’s liability decision tree

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.

Several companies in such a chain have to pay payroll taxes. Payroll taxes is the collective term for wage tax and social insurance premiums (for example, AOW premiums). Usually, the 'hirer' is responsible for paying payroll taxes. If you have hired a contractor, that is your company. But if the contractor then hires subcontractors, it becomes more complex.

What if one of those companies cannot pay their payroll taxes for this project. The Netherlands Tax Administration can hold any company in the chain in the chain involved in the work liable for (in Dutch) these costs. Including your company. That is chain liability. 

What is hirer's liability?

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 possibly also VAT, the Tax Administration may hold you, the hirer, liable for this (in Dutch). Good luck reclaiming the money from the lender in that case.

In what sectors does chain liability occur?

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 sectors. 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?

A G account is a blocked bank account. You use it for one sole purpose: your clients' deposits of payroll taxes and other taxes. From the G account, only payments into the Tax Administration's account can be made. You only have to have one G account: you can use it for different projects. 

Your client may suggest opening a joint G account with all subcontractors in the chain. You can deposit the payments that ultimately have to go to the Tax Administration directly into that G account.

That way, the money is safe. For example, should a subcontractor get into financial trouble, they cannot use the money that has been paid into the G account for anything else. They can only transfer the money to the Tax Administration. You can pay the subcontractor the rest of their money directly into their regular business bank account. 

How do you open a G account?

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)?

As a zzp’er, you are usually the hired party. But you may still face chain liability. This may happen if: 

• you yourself contract another company to carry out the assigned work, and this company brings in personnel to do it. 
• you hire a temp from an employment agency. 
• you hire a company in the garment industry. Different legislation applies to this sector (in Dutch).

If the company or agency that has been brought in fails to pay the payroll tax or the VAT that is due, the Tax Administration may hold you liable. You can apply for a G account if you run that risk. 

In all other cases, you do not need a G account as a zzp'er. After all, you do not pay payroll tax for yourself. Nor does a contractor who hires a self-employed professional to perform a task have to pay payroll tax for them. 

How do you minimise the risks?

You can mitigate the risks of chain and hirer's liability. For example, you can 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. 

Also, keep track of the amount of wages, payroll tax, and VAT owed by the subcontractor. In other words, you should always keep good records. And finally, you can pay part of the invoice directly into the comapny's G account, as described above. 

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).