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Thu February 20 2020

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Contractor still liable for CITB levy for workers engaged through services company

21 Jan 11 The CITB- ConstructionSkills imposes a levy on employers in the construction industry in order to fund training. Beacon had been liable to pay such a levy for a number of years.

However, in 2007 Beacon changed the way in which it engaged some of its workforce and challenged its liability to pay the levy. Whilst Beacon employed two contract managers plus office staff, its tilers, or roofing operatives as they were called, were self-employed so that the way they were paid by Beacon was governed by the Construction Industry Scheme (CIS). Because of the complexities of complying with the administration of payment under the CIS, Beacon engaged Hudson Contract Services Ltd. to take over the administrative burden.

This contract enabled Hudson to engage Beacon’s operatives so that it was liable under the CIS, and to provide the operatives’ services to Beacon. The operatives signed an agreement with Hudson on Hudson’s standard terms under which the operative would be engaged by Hudson to supply their labour to Beacon. Hudson paid these operatives what they would have been paid by Beacon, and Beacon reimbursed Hudson. This relieved Beacon of the administrative and clerical burden on complying with the CIS, although Beacon retained responsibility for insuring the operatives and complying with health and safety legislation. Beacon paid Hudson £15.00 per operative a week for these services. By January 2010, 95 operatives who had previously been engaged directly by Beacon swapped their contracts to Hudson.

In April 2009, the CITB issued its levy assessment notice to Beacon, requiring it to pay £18,446.00 by May. £3,235 of this was in respect of the sums on Beacon’s payroll and the remainder was 1.5% of the sums paid to Beacon’s “self-employed workers or subcontractors for labour only”, i.e. its roofing operatives. Beacon appealed against the assessment, arguing that it was not liable to pay in respect of the operatives employed by Hudson, or, alternatively, if it were liable to pay a levy for those operatives, the levy should have been calculated at the rate of 0.5%, not 1.5%. An Employment Tribunal ruled that Beacon was not liable to pay the levy for the roofing operatives, and the CITB appealed.

In the judge’s view, the tribunal’s approach had been flawed because it had assumed that the reason why Beacon had entered the contract with Hudson had to have been the purpose of the contract. It should also have considered why Hudson had entered into the contract. The existence of a distinction between the reason for entering a contract and the purpose of the contract did not mean that the parties’ subjective intentions had no part to play in ascertaining the purpose of the contract. Ascertaining the meaning of a contract was such a different exercise from ascertaining its purpose that the embargo on treating the parties’ subjective intentions as a tool for construing a contract did not necessarily apply when it was the contract’s purpose which the court was seeking to identify. The judge was in no doubt that the parties’ subjective intentions should be taken into account when determining a contract’s purpose.

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In the present case, the motivation for entering into the contract had been Beacon’s desire to rid itself of an administrative burden, and Hudson’s was to assume those responsibilities for a fee. Both those objectives could only be achieved by Beacon transferring its workforce to Hudson. The main purpose of the contract, therefore, had been for Hudson to provide the services of the operatives to Beacon. The tribunal had downplayed this by saying that Beacon had continued to source its own labour. This was true in that Beacon had chosen which operatives should sign agreements with Hudson. However, for the tribunal to say that Hudson had simply been interposed between Beacon and its workers suggested that in fact Beacon had continued to employ its workforce albeit through Hudson as an intermediary. The CITB’s appeal should be allowed and the levy assessment notice reinstated. 

Construction Industry Training Board v Beacon Roofing Ltd.;  [2011] EWHC 14 (Admin) 

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