CITB Levy
The Construction and Industry Training Board levy is a training levy imposed on construction sector “employers” – this includes employment businesses supplying temporary construction workers. All construction employers with a wage bill of £80,000 or more pay the levy which is used to fund training in construction skills. Changes have been made to the CITB levy which came into effect in 2017 and which means that more recruitment businesses are liable for the CITB levy than was previously the case. More detailed advice on the CITB and the levy is available from www.citb.co.uk .
Interaction with the new apprenticeship levy: From April 2017 all businesses with a wage bill of more than £3 million will have to pay the apprenticeship levy (new section to follow in January 2017)). This means that some businesses will be liable for both the CITB levy and the apprenticeship levy. CITB have told REC that:
- They continue to look at options for how the CITB levy can work alongside the apprenticeship levy in future, through an industry-led Levy Working Party.
- They will formally consult with businesses in 2017 on a levy proposal for 2018 onwards.
- This means that for one year, some firms will have to pay both levies.
- For 2017/2018 CITB will introduce a 12-month transition package to support levy payers through the CITB Grants Scheme.
- This will include an enhancement of up to 100% to the CITB grants they claim for training. It will be capped so that no employer receives more in enhanced grant than their apprenticeship levy bill. Importantly CITB grants are more flexible than apprenticeship levy funding. So recruitment businesses in the construction sector are encouraged to contact CITB to find out what CITB grants they could access.
As of October 2016 key contacts are:
- Nick James (Strategic Partnerships Director (London & South)) - nick.james@citb.co.uk
- Sarah Fenton (Strategic Partnerships Director (Midlands & North)) -sarah.fenton@citb.co.uk
- Ian Hughes (Strategic Partnerships Director (Scotland)) -ian.hughes@citb.co.uk
- Mark Bodger (Strategic Partnerships Director (Wales)) - mark.bodger@citb.co.uk
Other resources: Finally, if you are new to the construction sector or are thinking of setting up an agency in the construction sector then we recommend that you read our Guide to running an agency in the construction sector which covers a range of topics relevant to that sector.
Dismissal of application for judicial review of the new CITB levy order
On 18 April 2016 the High Court rejected Hudson’s application of a judicial review of the new CITB levy (R (Hudson Contract Services Ltd.) v (1) Secretary of State for Business, Innovation and Skills and (2) Construction Industry Training Board).
What is the CITB levy? The CITB levy has existed since 1964. It is one of a number of sector specific levies which exist to fund training within the relevant sector. The formula for calculating the levy due has changed numerous times since its inception. Also, the parties captured by the levy or the workers on whose services the levy was imposed have also changed. However Hudson have to date not been liable to pay the levy.
Why seek a judicial review: The Industrial Training Levy (Construction Industry Training Board) Order 2015 (the 2015 Order) sets out to simplify the levy. It does this by changing the formula for calculating the levy and the persons on whose services the levy liability is calculated. The 2015 Order also removes the offset mechanism allowed for in previously orders. In short, employers within the construction industry will now have to pay levy on payments made to subcontractors paid net via the Construction Industry Scheme (CIS). Payments made to subcontractors paid gross are exempt from the levy. The 2015 Order provides for three different levy periods. Only the last period, running from 1 January 2017 to 31 March 2017 (but referenced to a base period of 6 April 2014 to 5 April 2015) is relevant to Hudson. The net result is that Hudson, which payrolls thousands of construction subcontractors and which has previously escaped the levy, will now find itself liable for significant levy sums.
Grounds for review: Hudson sought the judicial review on the grounds that the 2015 Order was unfair and unlawful though they did not complain that there was any issue in how the statutory consultation took place. They also accepted that there was significant industry support for the change. Their challenge questioned whether the new method for raising the levy complied with the requirement to stay faithful to the Industrial Training Act 1982 and the powers conferred on the Secretary of State by that act. In particular they questioned the legality of the changed levy on three grounds:
- the legality of raising the levy from two different employers in respect of the same work i.e. it was a form of double taxation,
- allowing the levy to be raised by reference to more than the cost of labour (as was previously the case), and
- that the levy could be charged on work on which a different levy is also chargeable, namely the Engineering Construction Industry Training Board (ECITB) levy.
Hudson failed on all three grounds. The court found that the method of charging the levy had changed a number of times since 1964. Each time there were winners and losers. The court noted that “the novel system governing the third levy period represents a “polycentric” decision in an area in which the court has no special expertise…” (para 105). The Judge also said “I accept that there is an element of rough justice in the use of the CIS deduction system without allowing the equitable adjustments that would flow if “trueing up” were allowed, and without gross paid contractors being levied. But I must set against that the evidence of properly undertaken consultation widespread industry support, parliamentary approval and the lightening of the industry’s administrative burdens through simplification of the calculation and payment system”.
What does this judgment mean for recruiters? Some recruitment business in the construction sector have in the past registered for the CITB levy, others have not registered but have been pursued by CITB. Others have escaped liability entirely. However recruitment businesses are “employers” for the purposes of the levy and are required to register with CITB. The change in the levy formula means that recruitment businesses will find themselves liable for higher levy bills from 2017. Of course the apprenticeship levy also comes into force from April 2017 – it will be calculated at 0.5% of the total paybill. An allowance of £15,000 against an apprenticeship levy bill means in reality those businesses with paybills of more than £3 million will be liable for the apprenticeship levy. There has been a lot of concern and uncertainty about whether businesses in the construction sector could find themselves liable for both the CITB and the apprenticeship levy. Neither HMRC nor BIS have confirmed either way. However this case recognises that businesses could be liable for more than one sector specific levy, so arguably, they may find themselves liable for both the CITB and apprenticeship levy also. We will keep members updated on this point.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.