We have simplified the levy system to respond to your feedback about completing Levy Returns.
The 2012 Levy Order narrowed the definition of a labour-only agreement, but that still remains open to interpretation and can lead to difficulties in working out correct figures needed on the Levy Return.
Many employers told us that preparing the information needed for the Levy Return is time consuming and costly. They said:
- the Levy basis needed to be simpler
- the Levy Return needed to be easier and quicker to complete with no additional record keeping
- instead of raising a Levy on Labour-only subcontract payments (LOSC), CITB should consider a system based on PAYE and closer alignment with the HMRC Construction Industry Scheme (CIS), specifically the monthly CIS300 returns.
As a result of this feedback, the Levy Working Party (LWP), a small group of industry representatives, spent 18 months working on options to simplify the system.
Levy Simplification Calculator
Aims of simplyfing the Levy system
To develop the new simplified Levy system, the LWP worked towards the following objectives:
- The new levy system should be simpler.
- CITB should maintain current forecasted Levy income levels – not increase them
- Most employers should end up paying about the same amount of Levy as they would under the current system.
- The existing PAYE Levy rate (0.5%) should be maintained
- The final proposal must be endorsed by the industry
- The final proposal must be legally sound.
The simplified Levy system
The main features of the new system are:
- Keep PAYE Levy at 0.5%
- No longer raise Levy on payments to Labour-only subcontractors
- Introduce a Levy on labour payments made to Net (taxed) CIS subcontractors, using figures already provided by employers to HMRC. This will mean a Levy rate of 1.25% on Net CIS payments
- Keep the Small Business Levy Exemption of £80,000 (based on total payments to PAYE and Net CIS)
- Increase the the 50% Small Business Levy Reduction from £100,000 to £400,000
- Remove the Labour-Only Payments Received offset mechanism, which affects less than 10% of all employers.
How the new arrangements will work:
- Employers declare the total tax deducted from subcontractors as reported on their monthly CIS300s
- The tax figure will be grossed up by CITB using the current CIS tax rate (20%) and Levy would be calculated on the resulting sum. This mainly represents the labour element of the subcontract payment
- Employers no longer need to declare labour-only payments received from other employers as the offset mechanism will be removed. This offset is currently available to employers carrying out labour-only contracts for other employers in the construction industry. It allows labour-only payments received (LOPR) to be offset against the Levy liability for some employers in order to prevent levy being paid twice on the same work. Removal of this mechanism will simplify the process and spread the payment of Levy more widely and, in the view of the LWP, more equitably.
- Employers only need to declare payments made through the PAYE or CIS systems. No other payments will be liable to Levy
In July 2014, the CITB Board approved the Levy changes that had been recommended by the Levy Working Party. These chnages were subsequently approved by the consensus federations and employers as part of the formal consensus process.
The changes were included in the 2015 Levy Order, which passed through Parliament and came into force in March 2015 (the Levy Order gives CITB the authority to raise a levy and sets out how that levy will be calculated).
When will the changes be implemented?
These changes affect the Levy assessment employers will receive in 2017. That assessment will be based on the 2016 Levy Return which covers the period 6 April 2015 to 5 April 2016. This timescale gives employers notice of the change and allows them time to prepare for it in a way that is best for their business.
The benefits of this proposal include:
- A far simpler system for many employers - straightforward identification of figures required to complete the Levy Return
- No additional record keeping - Employers will simply use records kept for HMRC purposes to identify both PAYE and Net CIS payments
- Erases the uncertainty of the current system (LOSC) - There is no ambiguity about the status of a sub-contractor; they are either Net or Gross paid.
- Less time consuming to complete a Levy Return - Therefore it will be cheaper to complete, possibly resulting in reduced accountant/bookkeeper costs, and will lead to more value added time becoming available
- Greater compliance - Less scope for employers to get the Levy Return wrong and an easier and quicker verification process, resulting in a more level playing field for all
Getting it right
The new system has been subject to a rigorous process to ensure it complies with the objectives set out above. This has included:
- Consultation with employers at several events across Great Britain.
- Carrying out independent market research to gather employers’ views.
- Providing all employers with the opportunity to submit feedback on the proposed changes via a survey that was sent with the 2014 Levy Return.
- Analysis of Levy Return and CIS data supplied by 36,500 employers on their 2014 Levy Returns to assess the impact of the changes. This has been conducted using a sophisticated research model developed by independent consultants linked to Dundee University.
CITB’s objective is to maintain Levy income at existing forecast levels. The new Levy rate has been calculated using data provided by employers on their 2014 Levy Returns. It has been set at a level to keep the Levy as affordable as possible for employers, while ensuring grants can continue to be paid to support training.
Our research indicates that the majority of employers would see either no change or a reduction in their level of levy payments: 56% of employers will continuing to pay the same amount; 28% will see a reduction in their Levy; and 16% could see an increase.
The Levy rate will be reviewed again before the 2018 Levy Order.
Communicating with you about the changes
Here is a timeline of the commincations we have sent about the changes:
- July 2014: we wrote to all CITB-registered employers informing them of the changes to the Levy and the possible impact on their business.
- December 2014: we sent a mailing to all CITB-registered employers.
- Early 2015: we explained the changes on the reverse of the 2014 assessment notice sent to employers.
- Employers who provided CIS details on their 2014 Levy Return, were advised what their Levy liability would be if the new basis had been used.
Throughout the Levy simplification process, CITB has worked closely with the trade federations to keep their members aware of the process, as well as keeping the trade press informed about the changes.
CITB representatives have attended employer meetings throughout Great Britain, and continue to do so, to ensure as many employers as possible are aware of the new calculation and implementation date.
Levy simplification calculator
To help you understand the financial impact of the Levy changes on your business, we have created a simple calculator. This shows you how your Levy payments could change between the current system and the new system.
Visit our Frequently Asked Questions page for more information about the Levy changes.
What if your Levy assessment increases?
Some employers will see an increase in their Levy assessment in 2017 as a result of these changes.
If you wish to understand why this is happening, first use the Levy calculator to assess the potential impact on your business, then contact CITB if you have further questions: