Alan Nolan, Senior Partner at Aspire Business Partnership LLP, discusses CITB inspectors attacking construction agencies over labour-only contracts.
The Industrial Training Levy (Construction Industry Training Board) Order 2009 states that all employers engaged wholly or mainly in construction industry activities must fill in a Levy Return and pay the levy each year.
CITB Inspectors are becoming extremely active reviewing the communication strategy of agencies involved in construction related activities to establish whether they should have registered for the levy. The guidance states quite clearly that a failure to render a correct return could result in an estimated assessment being raised which could end up the subject of legal proceedings.
It appears that too many construction companies fail to appreciate that the supply of labour (wholly or mainly the provision of services) falls within the scope of the levy order. In such circumstances, any liability will fall upon the shoulders of the construction company rather than the agency.
But what about the situation when a third-party contracting intermediary is interposed between the worker and the agency – does this constitute a construction activity? According to the CITB it does and, as a result, the agency must register for payment of the levy for all “construction establishments” which is defined as being “any establishment engaged wholly or mainly in the construction industry”.
The term “Construction Industry” is defined in Schedule 1 of Industrial Training (Construction Board) Order 1964 (Amendment Order 1992). Broadly, this schedule contains the scope of the levy which is similar to the scope of the Construction Industry Scheme (CIS) but with some distinct differences.
Any CIS contracting intermediary interposed between the agency and the worker can expect to be seen as a subcontractor within the scope of the levy on the basis that it has entered into a labour-only agreement. As a result, the agency will be responsible for registering with the CITB and making payment of the levy based on 1.5% of all payments made under labour-only agreements together with 0.5% of all payments made to employees and directors.
Agencies should declare all payments received from employers who are wholly or mainly engaged in construction to ensure that the levy is not paid twice. Therefore it is necessary to take a measured approach to ensure all payments are captured and declared to avoid a hefty liability.
There are exemptions for agencies where construction activities are not the main activity. Experience suggests that the CITB are loathe to give up in this one without a fight. Small businesses are also exempt (less than £80k in payments to PAYE staff and Labour only subcontractors) although these businesses still have to complete a return.
It now appears that the construction agency sector is being targeted in an attempt by the CITB to widen its levy port-folio. If significant liabilities are to be avoided, agencies should review their business profile to establish whether a return is due and seek appropriate advice to minimise the potential consequences.