1. What is the Levy Working Party and who is on it?
The Levy Working Party is a small group of industry representatives established to look at ways to improve the Levy system. It was the work of the LWP that brought about (amongst other things) changes to the definition of a labour-only agreement in the 2012 Levy Order.
The Working Party has representatives from NSCC, FMB, CECA, NAS, UKCG and SDF and includes employers and a recognised industry tax expert. The Working Party is also assisted by the rest of the main trade federations.
2. What is wrong with the current system?
Some employers tell us that they find completing their Levy Return complicated and time
consuming. Trying to determine who the Labour-only sub-contractors (LOSC) are so that payments can be declared on the Levy Return seems to be the main problem area. This is backed up by statistics that show many employers complete their Levy Return incorrectly, mostly as a result of getting their LOSC figure wrong.
This also means that verifying Levy Returns can be time consuming and complicated.
Many employers find they have to keep a separate set of records just for completing their Levy Return, and some pay someone to do this for them, or incur additional admin time themselves, therefore increasing their costs.
3. What is CIS?
The Construction Industry Scheme (CIS) is the system HMRC use to pay and tax sub-contractors in the construction Industry. HMRC say whether a sub-contractor can be paid Gross (without tax deducted) or Net (with tax deducted by the main contractor), and the main contractor has to treat payments to their sub-contractors accordingly.
For the vast majority of Net paid sub-contractors the tax rate applied to them is currently 20%. Each month all employers in the construction industry have to submit a Return called a CIS300 to HMRC. This lists all sub-contractors paid in that month, the amount paid to them and any tax deducted from them if they are Net paid.
4. If I am just declaring the tax how will I know how much is going to be included in my Levy Assessment?
You can manually gross the tax figure up by multiplying it by 5 or dividing it by 0.2. If the tax rate were to change to say 21% then you would simply divide the tax by 0.21
5. Does this mean the whole payment made to the sub-contractor will be levied?
No. The benefit of using the tax figure is that any amounts relating to materials supplied by the sub-contractor are removed prior to tax being deducted, so the figure that is levied is just the labour element of the payment (plus any owned plant costs).
A very small number of sub-contractors (2%) are taxed at 30%, usually for a very short period of time while HMRC verify them. Once this is completed they are given 20% tax status. The new system will automatically gross up all CIS tax declared on the Levy Return by 20%, which means in the first instance that deductions of 30% are not taken into account. This will result in a slightly inflated figure becoming liable to Levy. We have discussed this with employers and they feel that the slight inaccuracy in the calculation is outweighed by the simplicity of the process. It is proposed that employers will have the ability to demonstrate to CITB any 30% tax payments and the Net CIS payments will be adjusted accordingly.
7. How will this new process make the system simpler?
Identifying the information needed on the Levy Return is much more straightforward – the figures required can simply be lifted from existing HMRC documents. You won’t need to work out which payments are Labour-only or keep additional records for CITB levy purposes.
8. How will this make completing the Levy Return cheaper?
Some employers ask their accountant to complete the Levy Return. It is perceived that the Return will now be far easier to complete and employers may choose not to ask their accountant to complete it. Equally if the Return is completed by the employer, and is quicker to complete then it will free up someone’s time to do more value added work and therefore reduces the administration costs incurred in completing the Levy Return.
9. What is the offset mechanism?
Under the current system if an employer works for another employer in the Construction industry on a labour-only basis then then they can declare the payments they have received from them on their Levy Return and this will be offset against their Levy liability at the LOSC levy rate.
10. What is the offset for?
The purpose of the offset is to prevent Levy being paid twice on the same work. So if the main contractor is paying Levy on a labour-only payment the employer receiving it declares the same payment on their Levy Return and this is then offset against the Levy due from them. In some cases some employers have sufficient offsets to reduce their liability to zero and pay no Levy regardless of their size.
11. Will removal of the offset mechanism mean Levy will be paid twice on the same work?
Quite possibly yes, but not by the same employer. It is likely that there will be some employers that will be paying a Levy on their own workforce, where the main contractor will also be paying Levy on the amount paid to the employer. However it is worth noting that it is two different employers paying the two levies, not one employer paying it twice on the same work. The changes will not result in more Levy being paid as CITB is committed to collecting the same amount of Levy with or without an offset mechanism. The removal of the offset mechanism is designed to keep the new process simple and fairer (spreading the contributions to levy over a wider number of employer). 12. Does the new CIS Levy rate of 1.25% mean I will pay less Levy?
Not necessarily. This will depend on how much you pay to Net paid sub-contractors in comparison to Labour-only sub-contractors. If you pay significantly more to Net paid sub-contractors than LOSC then you could pay more Levy despite the lower Levy rate. The proposal objectives committed CITB to try and ensure that most employers pay approximately the same amount of levy under either system.
13. Does this proposal achieve the objective of most employers seeing little change to their Levy?
Research based on the 2014 Levy returns submitted by 23,000 employers shows that this has been achieved with 60% of employers seeing either no change or no more than a 5% increase or decrease in their Levy liability. 84% of employers see no change or a reduction in their Liability.
14. I don’t pay sub-contractors, how will I be affected?
If you only have a PAYE workforce then the proposal will have little impact on how you complete your Return or how much Levy you pay. The Levy rate applicable to PAYE payments under the new system will remain at 0.5% so the only change that could affect you is the extension of the Small Business Levy Reduction band to £300,000. If your total payments are between £80,000 and £300,000 your Levy bill will be reduced by 50%.
15. I make payments to a labour agency for office temporary staff that aren’t paid through CIS; what do I do with these?
Currently these would be required to be included on your Levy Return, but under the new system you will only need to declare payments made through PAYE or CIS. Anything paid purely through the purchase ledger will not be required to be declared on your Levy Return. This is to keep the system simple.
16. Who supported the change?
All employers were invited to complete a Levy survey with their 2014 Levy Return and survey results show support for the changes from the majority of respondents. We have also consulted with many of the industry’s federations and obtained positive feedback from employers at a number of consultation events and via independent market research.
17. Is it definitely going to happen now?
The CITB Board has now given its approval to implement the new system in 2017; however this is still subject to Parliamentary approval in early 2015.
18. I complete a manual CIS300 each month, what does this mean for me?
According to HMRC 80% of contractors now complete their CIS300 using computer software all of which total the tax deducted in the month. This makes identifying the figure required on the Levy Return as simple as possible. Regrettably the manual CIS300s do not have totals so employers using these forms will still need to add up all the tax deducted on all 12 monthly CIS300s to declare the figure required on the Levy Return. However this should still be an easier process for most employers using these forms as they don’t need to identify which sub-contractors are LOSC.
It is worth noting that HMRC are currently consulting with industry on various issues relating to CIS, one of which is the proposal to make on-line submission of CIS300s mandatory.
19. Will this new system encourage employers to stop using Net paid sub-contractors and instead opt to use Gross paid sub-contractors?
Consultation with employers suggests that whilst this is a possibility a wholesale swing from Net to Gross paid is not anticipated. Feedback from employers says that more than just Levy implications will be taken into account when determining whether to employ a sub-contractor or not. Factors such as quality, reliability, experience, demand and location will continue to have an influence on which sub-contractors are used.
20. Does CITB think LOSC is the same as Net CIS?
No, CITB is not trying to replicate LOSC by asking for Net CIS payments. The basis of levying sub-contractors is changing and payments to LOSC will no longer be the basis. This change will mean that labour payments made to Net paid supply and fix sub-contractors will now need to be declared on the Levy Return when previously they haven’t. Equally payments to Gross paid Labour-only sub-contractors will no longer be required on the Return.
21. My main contractor deducts levy from payments made to my business, will this new system prevent this?
There is no simple answer to this; it depends on your main contractor and how you are paid. Firstly it is worth pointing out that CITB and the vast majority of the trade federations are opposed to the act of passing Levy onto sub-contractors and it is not part of the formal Levy process. The requirements under the current and new schemes are for employers to pay levy on certain sub-contract payments. Jointly we feel passing this obligation onto sub-sub-contractors goes against the spirit of the legislation governing CITB which does not authorise this practice. If a sub-contractor has payments deducted in respect of CITB Levy that have not been contractually agreed then it may be appropriate to seek independent legal advice.
With regards to the new system if you currently work for a main contractor on a labour-only basis but you are paid Gross through CIS, the main contractor will not be required to pay Levy on payments to you. Equally if you work on a supply and fix basis but are paid Net through CIS then your main contractor will have to start paying Levy on the labour element of your payments. Some main contractors could see significant increases or decreases in their Levy liability dependent on how much they pay to Net paid sub-contractors. All the above could have an impact on how a main contractor accounts for their Levy liability under the new system.
22. Will the proposal change who I can claim Grant for?
Under the current system there is a clear alignment between who goes on your Levy Return and who you can claim Grant for. The Grant Scheme will need to be reviewed to align with the new Levy system and it is anticipated that Grant eligibility for sub-contractors will change from LOSC to Net CIS in the future, but this is yet to be confirmed.
23. What can I do if I am still opposed to the changes?
The changes have been subject to a rigorous research and consultation process and they do have the support of the industry. However there is a minority of employers that will be financially impacted and may not support the change. If you are opposed to the changes and wish raise your concerns you can:
If you are a member of an employer federation or association, speak to them. CITB have a good relationship with all the trade federations and they will ensure the views of their members are made aware to CITB
Contact CITB directly in writing at CITB Levy & Grant Operations, Bircham Newton, Kings Lynn, Norfolk. PE31 6RH or by email to email@example.com