These changes are included in the 2012 Levy Order. The legislation sets out how levy will be calculated over the next three years; based on 2011, 2012 and 2013 Levy Returns.
There are several important changes in the Levy Order that you need to be aware of:
- Small Business Levy Reduction
- Definition of a Labour-only agreement (LOSC)
- Removal of Pay As you Earn (PAYE) exclusions
These will remain unchanged for the next three years at 0.5% for payments to direct employees (PAYE) and 1.5% for payments to labour-only sub-contractors (LOSC).
Small Business Levy Exemption
Formally known as the Smalls Firms Threshold. The level at which employers begin to pay levy also remains unchanged from the previous Levy Order.
If your total PAYE and LOSC payments are less than £80,000 you will continue to be exempt from paying levy. You do however remain eligible to claim grant (assuming all qualifying standards are met).
Small Business Levy Reduction
This is new to the 2012 Levy Order. It is specifically designed to help small businesses whose total PAYE and LOSC payments fall just above the Small Business Levy Exemption level.
If you make total payments to PAYE and LOSC of £80,000 or more, but less than £100,000, then your Levy bill will be reduced by 50%. Please see below for an example of this reduction.
|Amount you paid to employees on payroll (PAYE)
Amount you paid to self-employed workers or sub-contractors for labour only (LOSC)
Less Small Business Levy Reduction of 50%
Total Levy Payable after Small Business Levy Reduction
Definition of a labour-only agreement
The definition of a labour-only sub-contractor (LOSC) within the 2012 Levy Order has been changed.
In simple terms, an agreement is still labour-only where its purpose is mainly for the provision of the subcontractor's services.
So contracts where main materials are provided by someone other than the subcontractor are considered to be labour-only, as do contracts where incidental materials and/or incidental plant and equipment have been provided by the sub-contractor.
However, changes to the Levy Order now mean that a contract which 'requires substantial use of plant or specialist equipment or both' is no longer a labour-only agreement.
For an explanation of ‘substantial use’ and examples of labour-only agreements please refer to the2012 Levy Return Guidance Notes (PDF, 1.61 MB).
Removal of Pay As you Earn (PAYE) Exclusions
Under the previous Levy Order, you did not have to declare PAYE payments on your Levy return, if they were to:
- Agricultural staff
- Catering staff
- Staff working less than 8 hours per week
These payments will need to be included on all Levy Returns from 2012 onwards, as part of measures to increase fairness.