The Levy assessment received by employers in spring 2017 was the first under the new calculation, known as 'Levy simplification'. This new Levy calculation was designed and approved by industry and government as part of the 2014 consensus process.
As this new approach would result in a minority of employers seeing an increase in their Levy bill, it was agreed to delay the implementation of the new Levy until 2017 to give employers time to adjust.
The Levy that was implemented from April 2017 will be in place for one year before the next Consensus takes place from July to September 2017. This will determine the Levy from April 2018.
How the 2017 changes affect your Levy payments
Most employers have not seen a big difference to their Levy payments in 2017. Our research shows that approximately:
- 51% of employers will continue to pay the same amount
- 31% will pay less
- 18% may pay more.
The reason some employers may have seen a difference to their Levy Assessment is because the 2016 Levy return saw the following changes come into effect:
- The rate on payments to Pay As You Earn (PAYE) staff will remain at 0.5%
- The levy is no longer raised on payments to Labour-Only Subcontractors (LOSC)
- A rate of 1.25% was introduced on payments to Construction Industry Scheme (CIS) subcontractors who employers deduct CIS tax from (commonly known as Net CIS)
- Employers with a wage bill under £80,000 (both PAYE and Net CIS) continue to be exempt from the Levy
- The 50% Levy reduction was extended by raising the wage bill (both PAYE and Net CIS) threshold to £400,000
- The Labour-Only Payments Received (LOPR) mechanism was removed.
Benefits of the new Levy
Here are some of the main benefits of the new Levy:
- While the total amount of Levy assessed remains approximately the same, more employers are contributing a Levy.
This is a fairer system that benefits the majority of Levy-paying employers.
- It’s now easier to identify the figures you need for the Levy return.
The feedback we had from industry was that the previous Levy returns were complicated to complete and wasted considerable employer time.
- Less record keeping is required as the monthly forms employers already send to HMRC are used to complete the Levy return.
- Removes any ambiguity around sub-contractors.
Subcontractors are now categorised by whether they are paid after deducting CIS tax (or ‘paid net’), or without deducting tax (or ‘paid gross’).
How the 2017 Levy was developed
Leading up to the 2014 consensus process, we engaged with employers from across the industry to seek views on the Levy proposals. The industry-led Levy Working Party was established to review the proposals and feedback from industry, making recommendations to the CITB Board for approval.
Further analysis was undertaken with Dundee University to test the models before the final proposal was published for Consensus with industry.
1. Industry feedback
The process to review the 2015 Levy Order began before 2012, when CITB collected employers’ views on the CITB levy.
Industry told us:
- The basis for calculating the Levy needed to be simpler
- The Levy return needed to be easier to complete with less bookkeeping
- Instead of raising a Levy on payments to Labour-Only Subcontractors (LOSC), CITB should collect the Levy based on Pay as You Earn (PAYE) and align with the government’s Construction Industry Scheme (CIS) and the monthly CIS300 forms that employers send to HMRC.
2. The Levy Working Party
Having gathered industry feedback, the industry-led Levy Working Party spent 18 months developing ways to simplify the Levy system.
The Levy Working Party worked to some industry agreed objectives:
- The new Levy should be simple to administer
- CITB should maintain the forecast Levy income levels, but not increase them
- The majority of employers should pay about the same amount under the new Levy
- The existing PAYE rate of 0.5% should remain the same
- The final proposal must be endorsed by the construction industry
- The final proposal must be legally sound.
3. Consultation with industry
Once proposals were developed, CITB consulted with industry, ensuring that the proposals met the objectives set.
- Hosted events with construction employers across Great Britain
- Conducted independent research to get employers’ views
- Surveyed all employers with the 2014 Levy return to gather feedback on the proposed Levy changes
- Undertook analysis of the 2014 Levy returns and CIS data from 36,500 employers to assess the potential impact of the changes.
This modelling had begun as early as 2012 and was updated each year with the current Levy return data.
This modelling helped to understand how many employers would be affected and potentially by how much – this ensured the objectives were being met.
4. Approving the final Levy proposal
In July 2014, the CITB board approved the Levy Working Party’s Levy proposal which was PAYE at 0.5% and Net CIS at 1.25%
The final proposal was then put to the industry through the formal consensus process, and received approval from both employers and the consensus federations. Find out more about the consensus survey.
Once consensus with industry had been achieved, CITB submitted the approved proposal to the government and it was included in the 2015 Levy Order, which came into force in March 2015.
As part of the approvals process, it was agreed that the new Levy would be delayed until April 2017 to give employers more time to adjust.
In order to facilitate this, all registered employers were sent letters notifying them that the Levy was changing and highlighting how it was likely to affect them.
Employers were also sent a mock assessment outlining what the change might mean for them on the 2014 and 2015 Levy Assessment Notices.
When does the Levy change again?
The Levy that was implemented from April 2017 will be in place for one year, as Consensus takes place from July to, September 2017 and this will determine the Levy from April 2018.
Find out more about the future Levy.