3D Force Ltd v The Construction Industry Training Board: 3308692/2024 3D Force Ltd v The Construction Industry Training Board: 3308692/2024
EMPLOYMENT TRIBUNALS
Case No 3308692/2024
Between
3D Force LtdClaimantThe Construction Industry Training BoardRespondent
Before
Employment Judge DickMr M Domnisor (director (instructed by the appellant)) for appellantDate 17 April 2025
JUDGMENT
The levy issued on 22 April 2024 is confirmed and the appeal is dismissed. This is the unanimous judgment of the Tribunal.
REASONS
[1]By way of a written notice dated 22 April 2024, the Construction Industry Training Board (“the respondent”) imposed a construction industry levy on 3D Force Ltd (“the appellant” or “the appellant company”). On 17 March 2025 we heard an appeal against that decision. We dismissed the appeal, giving oral reasons for our decision. At the end of the hearing Mr Domnisor for the appellant requested written reasons for our decision. These are those reasons.[2]The appeal was brought on three grounds:2.1 That the appellant is not in the category of businesses that are subject to the levy;2.2 That the levy had been incorrectly calculated; and2.3 Other businesses in similar circumstances to the appellant have not been subject to the levy. We took account of the written statement of Mr Domnisor, which was not contested by the respondent, and also documentary evidence in an agreed bundle, and further documents provided by the appellant. We heard submissions, first from Mr Byrne for the respondent and then from Mr Domnisor for the appellant.
Statutory Framework
[3]The Industrial Training Act 1982 (“the Act”) established a number of industrial training boards, for the purpose of making better provision for vocational training in such “activities of industry and commerce” as may be specified by order of the secretary of state. One such board is the respondent. Each board has the power, under s 11 of the Act, to submit proposals to the secretary of state for the raising and collection of a “levy” to be imposed, by way of a “levy order”, upon employers in the relevant industry, for the purposes of meeting the board’s expenses.[4]The order establishing the respondent is the Industrial Training Construction Board Order 1964 (“the 1964 Order”). (Legislation similar to the 1982 Act had been in force at the time of the 1964 Order.) The 1964 Order, amongst other things, sets out what activities are activities of the construction industry (i.e. it in effect defines “construction industry”). We deal with that in more detail below.[5]This appeal is brought under sections 12(4) and (5) of the Act, which provide that a person subject to a levy may appeal to an employment tribunal and that if the appellant satisfies the tribunal that he ought not to have been assessed to the levy (or ought to have been assessed in a smaller amount) the tribunal shall rescind or, as the case may be, reduce the assessment but (subject to paragraph (b), which is not relevant on the facts of this case) in any other case shall confirm it.[6]The levy order applicable to this case is the Industrial Training Levy (Construction Industry Training Board) Order 2022 (“the 2022 Order”). One procedural point we can deal with briefly is that Article 15 of the 2022 Order sets out time limits applicable to an appeal under s 12 of the Act. A time limit may be extended by the Board or, where not so extended, by an employment tribunal. The respondent took no issue with us extending time in this case if necessary and we did so. Undisputed facts[7]As Mr Domnisor explained in his written evidence, the appellant was a small company operating under the Construction Industry Scheme (“CIS”), doing mostly kitchen and bathroom refurbishment in residential properties as a subcontractor to two well-known building supplies and kitchen sales companies. The company had two employees on payroll (PAYE) – Mr Domnisor and his wife. But it also made significant use of its own subcontractors to do its work. In 2023 the appellant received a notice from the respondent which required it to provide certain information to the respondent in order that the respondent could decide whether the appellant should be subject to a levy. The appellant provided the required information and there was no dispute that it did so honestly and accurately. On 22 April 2024, by written notice, the respondent required the appellant to pay a levy of £ 5,147. This figure was a significant proportion (Mr Domnisor estimated over 6%) of the appellant’s profits. As will be seen, the calculation was based principally on a figure of £ 407,165 effectively declared by appellant to have been paid to subcontractors. Unfortunately for the appellant, had the total figure subject to assessment been below £ 400,000, the levy would have been reduced by 50% by way of the “Small Business Levy Reduction”, but above that threshold there is no reduction (i.e. the reduction is not tapered).[8]We refer below to other undisputed facts which are of relevance to particular grounds of the appeal as we deal with each ground. First ground of appeal[9]The first ground of appeal was about whether the appellant company was subject to the levy. Article 3 of the 2022 Order says that the levy is to be imposed on “employers”, which, by Article 2(h) means employers “in the construction industry”. Under Article 5, the Board must assess the amount of levy to be paid in respect of each construction establishment, i.e. any particular establishment of the employer “engaged wholly or mainly in the construction industry”. For the purposes of this appeal, this posed two sub-questions: was the appellant(i) engaged wholly or mainly in the construction industry and(ii) an employer. Ground 1(i) – Was the appellant in the construction industry[10]We were referred to the case of The Queen on the Application of Bobcat Plant Hire (UK) Ltd v CITB [2003] EWHC 2383 (Admin), which concerned whether Bobcat, a seller of construction equipment was engaged “wholly or mainly” in the construction industry, under an order which predates the 2022 Order. Whatever the relevance of that case, there is no real issue that the appellant company in the case we are deciding was engaged wholly or mainly in kitchen fitting or refurbishment. In response to the respondent’s request for information, the appellant company gave its main activity code as “Alteration to building/part of” and said, “Our main activity is refurbishment of kitchens and bathrooms.” It gave a breakdown of activities and said that it was 60% kitchen installations.[11]The real issue for us was, do kitchen installations or refurbishments come under the statutory definition of being in the construction industry? The starting point there is Art 2(1)(e) of the 2022 Order: “ ‘the construction industry’ means the activities of the construction industry as defined by Schedule 1 of [the 1964 Order]”. So far as is relevant, Schedule 1 of the 1964 Order says: 1. Subject to the provisions of this Schedule, the activities of the construction industry are the following activities …:— (a) all operations in— (i) the construction, alteration, repair or demolition of a building or part of a building; … 2. [Activities which would otherwise be activities of the construction industry are specifically exempted.] 3. In this Schedule, unless the context otherwise requires:— … “repair” in relation to a building includes maintenance, re-pointing, redecoration and external cleaning[12]The fact that “external” qualifies only “cleaning” in the last passage suggests that both internal and external “maintenance and redecoration” (and indeed, repointing) are included. From all of that it is clear to us that the 1964 and 2022 Orders between them impart a far wider definition of construction than might initially be thought to apply to that word.[13]None of the exemptions listed in sub-article 2 appear to us to apply in this case, or at least to the appellant’s main activities relating to kitchens. Do kitchen installation and refurbishment amount to altering or repairing part of a building? Given the wide meaning to which we have just referred, we would have found on the basis of our own interpretation that fitting kitchens inevitably involves repair and/or alterations of part of a building, but it also seems to us that there is a High Court authority directly on point: Mark Wilkinson Furniture Ltd v CITB [2000] 7 WLUK 838, HC, CO/1318/00. In that case the appellant company manufactured and installed fitted units for bathrooms and kitchens. Part of the decision concerned whether the company’s activities comprised alteration of part of a building. The High Court held that in installing/fitting units the company altered the kitchen, which was part of a building. There seems no reason in our judgment to distinguish that case from the case we had to decide. We found that the activities of the appellant company in this case were alteration and/or repair of part of a building. Ground 1(ii) – Was the appellant an employer[14]There is no dispute that the appellant company “employed” two people in the narrow sense of the word “employ” – Mr Domnisor and his wife had employment contracts within the meaning of the Employment Rights Act 1996 (“ERA”) and were paid under the PAYE scheme. The appellant also told the respondent, in answer to its queries, that over the relevant period it engaged nine subcontractors. In the context in which we are considering it, does the word employer have a wider meaning than under ERA, such that it applies to the appellant’s engagement of sub-contractors? In our judgment it does. The 2022 Order says: “Employer means an employer in the construction industry” and gives no further definition. But s 1(2) of the 1982 Act does carry a definition of employment and, in our judgment, that must be the definition that applies given that the 2022 Order is made under the powers conferred by the 1982 Act. S 1(2) says: “employee” includes a person engaged under a contract for services, and “employer” shall be construed accordingly; “employment” means employment under a contract of service or apprenticeship or a contract for services or otherwise than under a contract, and “employed” shall be construed accordingly;[15]In our judgment therefore, employment in this context includes employment under a contract for services. Someone under a contract for services is commonly described as a contractor and is to be contrasted with someone under a contract of service, i.e. an employee within the meaning of ERA (who would also be covered by the s 1(2) definition).[16]Further support for this approach, in our judgment, is found in Article 7 of the 2022 Order. We will deal with the provision in more detail in a moment, but Article 7 makes specific provision about contract payments and the definition of those payments is such that they can only be payments that are made as part of a contract for services rather than through a contract of service. So, much of Article 7 would be entirely redundant if employer and employee had the narrower definition that it often has in other parts of employment law.[17]So for all of those reasons, we found that the wider definition of employer and employment applied in this case and that the appellant company in this case was, for the purposes of the Act and the 1964 and 2022 Orders, an employer, not simply of Mr Domnisor and his wife but also of the contractors the appellant engaged. Second ground of appeal[18]The second ground of appeal was based on whether the levy amount was correctly calculated. The basis for the calculation is set out in Article 7(1) of the 2022 Order: (1) The amount of levy to be assessed in respect of each construction establishment for each levy period is— A + B where A is an amount equal to 0.35% of all emoluments (other than the relevant part of all contract payments) which have been paid or are payable by the employer to, or in respect of, persons employed by the employer at or from the construction establishment during the relevant base period; and B is an amount equal to 1.25% of the relevant part of all contract payments made by the employer to, or in respect of, persons employed by the employer at or from the construction establishment during the relevant base period.[19]The respondent’s calculation, as set out in the assessment notice of 22 April 2023, was as follows: Amount paid to employees on payroll: £ 16,800 0.35% of that [i.e. A above]: £ 58 Amount paid to net paid (CIS taxable) sub-contractors: £ 407,165 1.25% of that [i.e. B above]: £ 5089 Total levy due [i.e. A + B]: £ 5147[20]By article 7(1), the amount to be paid is assessed by adding A and B. A is an amount equal, to paraphrase slightly, 3.5% of the amount that the company pays to employees (in the narrower sense) and actually there was no issue in this case about that part of the calculation, which forms by far the smaller part of the levy calculation in this case.[21]What was in issue was whether B was calculated correctly. B is an amount that is equal to 1.25% of the “relevant part” of all “contract payments” made by the “employer” to, or in respect of, persons “employed” by the employer at or from the construction establishment during the relevant base period. There was no issue here about whether the base period was correctly applied. For reasons we have already set out, persons “employed” in this sense include contractors. The point here was about the relevant parts of contract payments.[22]Article 7(2) of the 2022 Order says that “contract payment” has the meaning given to it by section 60 of the Finance Act 2004. S 60 of the Finance Act defines a contract payment as being: “Any contract payment made under a construction contract by a contractor or sub-contractor.”[23]As to “relevant part”, Article 7(3) of the 2022 Order says that the relevant part of a contract payment is the part of the contract payment in respect of which the relevant percentage is applied for the purpose of section 61 of the Finance Act 2004. Section 61 of the Finance Act 2004 deals with deductions to be made from payments made to contractors subject to the CIS. It says (our use of bold):(1) On making a contract payment the contractor (see section 57(3)) must deduct from it a sum equal to the relevant percentage of so much of the payment as is not shown to represent the direct cost to the sub- contractor of materials used or to be used in carrying out the construction operations to which the contract under which the payment is to be made relates.(2) In subsection (1) “the relevant percentage” means such percentage as the Treasury may by order determine. …[24]There was no dispute in this case that the relevant percentage, as determined by the Treasury, is in fact 20%. The question really was, what is 20% deducted from? As is clear from the parts of the statute reproduced above, it is the part of the contract payment which is not shown to represent the direct costs of materials. The deduction is intended to be made from an approximation of the costs of the labour, rather than from the total costs of labour and materials. The same applies to the levy – it is intended to be applied to an approximation of the costs of labour but not the costs of materials; the approximation is achieved by use of the CIS deductions figures. The deduction is 20% so the total paid to contractors which is not shown to be for materials – the relevant part for the purposes of the 2022 Order – is calculated by multiplying the declared deduction by five.[25]It was not in dispute in this case that the appellant company declared to the respondent what is known as a “Box C figure” of £81,433. That figure was the total amount deducted from sub-contractors paid through the CIS. The subcontractors paid through the CIS here are what is known as “net paid subcontractors”. The appellant deducted the 20% (i.e. a total of £ 81,433) pursuant to section 61 of the Finance Act 2004 from its payments to subcontractors. It declared those figures on a monthly basis to HMRC and there is no dispute that the annual figure that it then declared to the respondent in this case was an annual total of those monthly figures declared to HMRC. It seems to us that that figure of £ 81,433 was 20% of the amount not shown to represent the direct cost to the sub-contractor of materials.[26]Now, although it was the appellant’s case that in some cases the amount that was paid to contractors in practice often included significantly more than 20% for materials and so on, and it was just that the invoices did not always reflect that, that is beside the point in our judgment. The amounts declared were still 20% of the amount not shown either to HMRC, or to CITB, or to us, to represent the direct cost of materials. That was precisely how the appellant declared it. It may be that that results in what is a rough and ready estimate of labour costs rather than a precise calculation but, in our judgment, that is the statutory scheme.[27]We therefore concluded that the respondent’s calculation for figure B was, correctly, 1.25% of 5 times the Box C figure. The basis for the calculation was correct and so too was the respondent’s arithmetic. The amount of the levy was correct. Third ground of appeal[28]The third ground was based on the appellant’s assertion that other companies in similar circumstances have not been subjected to the levy. We can deal with this point fairly briefly. We were shown two first instance decisions of the employment tribunal which do not appear to us to set out any particular propositions of law, and even if they did, we would not be bound by them as they are first instance decisions. It seemed to us that the question for us was simply whether the rules apply to this appellant, not whether they apply to other companies or whether they have been correctly applied to other companies. It might well be that the respondent is unaware of other companies to which these regulations might be applied, and so has taken no action against them, but that in our judgment is neither here nor there.
Conclusion
[29]Taking all of those three points into consideration, we concluded that the levy was correctly applied and correctly calculated – the appellant did not satisfy us of the contrary. We therefore formally confirmed the amount of the levy and we dismissed the appeal.[30]We do note in closing that Mr Byrne, for the respondent, did tell us that the respondent would be willing to enter into a conversation with the appellant about payment by installments. We had no power to order that, but we did of course encourage the parties to speak about that possibility. Approved by: