Construction levies
There are two types of levies on construction employers; the Construction Industry training Board (CITB) levy and the government’s new Apprenticeship Levy. The rules for each type of levy have been summarised herein. Example calculations for each type of levy are given in table 1 and 2 further below. Construction employers are required by law to register and pay these levies. The levies are calculated for each fiscal year i.e. 6th April to 5th April.
The rules for CITB levy were simplified from April 2016 onwards. Up to 2015 CITB levy was applied to labour only subcontractors (LOSC) and a credit was given, called ‘offset’, on payments received for labour only work (LOPR). From April 2016 levy is on all payments to net CIS subcontractors and there is no offset for LOPR.
CITB Levy
1) Construction employers are required by law to register with CITB and pay annual levy where their wage bill is more than £80K.
2) The levy is calculated as 0.5% of the gross payments to PAYE employees plus 1.25% of on all CIS subcontractors for whom CIS is deducted. The CITB levy is not applied on those subcontractors whop are paid gross.
3) Employers with a wage bill of under £80K will be exempt from the levy. There will also be a 50% reduction of the levy if the wage bill is less than £400K.
4) There will be no longer be any offset against the levy for labour only payments received (LOPR).
5) The employer files an annual return and pays the CITB levy annually or through ten direct debits.
Apprenticeship Levy (AL)
1) The Apprenticeship Levy (AL) for construction employers was introduced by the government in the 2015 summer budget. The scheme will start in April 2017 with the aim of funding 3 million new apprentices by 2020, i.e. 1 million apprentices each year.
2) The AL is separate from the CITB’s own levy.
3) The AL is calculated as 0.5% of the annual wage bill (direct wages plus payments to net, CIS x 5, CIS contractors).
4) There is an annual offset allowance of £15K. The allowance is given to a single company or can be shared between a group of connected companies.
5) The £15K offset allowance means that only employers with payroll of >£3M will have to pay the AL.
6) For 2017/18, companies with payroll over £3M will have to pay both the AL and CITB levy. The CITB cannot currently say if after 2017/18 companies will have to pay both levies.
7) The £15K allowance is spread over 12 months and so £1,250 each month. The 0.5% is calculated on the monthly payroll and the AL is paid if the difference exceeds the £1,250 monthly allowance otherwise, unused allowances are carried forward to the next month.
8) Apprenticeship Levy will be paid through the PAYE system.
9) Employers will be given a digital account and receive digital vouchers in return for the AL payments and they have 24 months to use these vouchers. Employers can use these vouchers on a first in first out basis to pay for training. The government will top up the vouchers by 10p for every £1 spent.
10) Connected companies (i.e. group companies) can pool their AL funds to pay for apprenticeship programmes.
11) An employer can pay an apprentice to take a higher level qualification in their existing training or same or a lower level qualification in a different training programme.
12) The employers can choose the training provider but the government will cap the cost of training for each apprentice. There will be 15 funding bands ranging from £1,500 to £27,000. The capped training costs will be deducted from the employers account over the course of the apprentices training. Any costs above the limit set will have to be met by the employer directly. Once the digital account is used up, the government will fund further training through a ‘co-investment’ programme.
13) Those employers who do not pay the AL will have to contribute 10% of the cost of training by a government registered provider. For small employers with less than 50 employees, and who take on 16-18 year old apprentices, all their costs will be funded by the government.
14) Both training providers and employers, taking on a 16-18 year old, will receive a £1,000 incentive. Apart from this, the government will be making other incentive payments.
15) Employer can transfer up to 10% of the funds in their digital account to other employers in their supply chain or apprenticeship Training Agencies.
16) The AL applies to all UK employers however; the funds only funds raised for employees who live in work in England will be credited to the digital account. Scotland and Wales will receive separate funding.
17) The CITB has 70,000 firms and around 700 or 1%, are expected to pay the AL thus raising £2.5bn each year.
Table 1- CITB LEVY example | ||
|---|---|---|
| DIRECTLY EMPLOYED | Gross (excl. VAT) | |
| Directly employed staff | £ 819,802 |
|
| Directly employed admin | £ 27,042 | |
| Directors | £ 55,000 | |
| £ 901,844 | ||
| SUBCONTRACTORS | CIS deducted | Gross (excl. VAT) |
| Labour Only Subcontractors (LOSC) x 5 | £ 15,400 | £ 77,000 |
| Supply & fix - CIS deducted x 5 | £ 12,000 | £ 48,000 |
| Total wage bill for Levy purposes | £ 1,928,688 | |
| Gross- Supply & fix | £ 150,000 | |
| Gross- Labour only | £ 50,000 | |
| £ 2,128,688 | ||
| Labour Only Payments received (LOPR) x 5 | £ 1,000 | £ 5,000 |
| CITB LEVY CALCULATION | Tax year 2015 | Tax year 2016 | Tax year 2017 |
|||
|---|---|---|---|---|---|---|
| PAYE -Gross amount | 0.50% | £ 4,509 | 0.50% | £ 4,509 | 0.50% | £ 4,509 |
| LOSC - Net amount | 1.50% | £ 1,155 | not applicable | not applicable | ||
| Labour Only Payments Received (LOPR) | -1.50% | -£ 75 | not applicable | not applicable | ||
| LOSC + Supply & fix - | 1.25% | £ 1,713 | 1.25% | £ 1,713 | ||
| TOTAL CITB LEVY | £ 5,589 | £ 6,222 | £ 6,222 |
Table 2 -APPRENTICEHIP LEVY example | ||
|---|---|---|
| DIRECTLY PAID STAFF | Gross wages |
|
| Directly employed staff | £ 800,000 |
|
| Directly employed admin | £ 27,042 |
|
| Directors | £ 55,000 |
|
| SUBCONTRACTORS | CIS deducted | Gross (excl VAT) |
| CIS deducted | £ 500,000 | £ 2,500,000 |
| Gross CIS | £ - | £ ignored |
| TOTAL WAGE BILL | £ 3,382,042 |
| CALCULATION | Tax year 2017 | |
|---|---|---|
| Levy sum | £ 16,910 | |
| Less offset allowance | 0.50% | £ 15,000 |
| TOTAL LEVY -Paid through PAYE | £ 1,910 |
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Article written by Haroon Rafique (Principal, Meer & Co Chartered Accountants and Tax Consultants)
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