Spending the levy
Guidance on the Community Infrastructure Levy was added to this website on 12 June 2014. This replaced the standalone guidance that was published in February 2014. Read more about the changes to the guidance.
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What can the Community Infrastructure Levy be spent on (and by whom)?
The levy can be used to fund a wide range of infrastructure, including transport, flood defences, schools, hospitals, and other health and social care facilities (for further details, see Section 216(2) of the Planning Act 2008, and Regulation 59, as amended by the 2012 and 2013 Regulations). This definition allows the levy to be used to fund a very broad range of facilities such as play areas, parks and green spaces, cultural and sports facilities, academies and free schools, district heating schemes and police stations and other community safety facilities. This flexibility gives local areas the opportunity to choose what infrastructure they need to deliver their relevant Plan (the Local Plan in England, Local Development Plan in Wales, and the London Plan in London). Charging authorities may not use the levy to fund affordable housing.
Local authorities must spend the levy on infrastructure needed to support the development of their area, and they will decide what infrastructure is needed. The levy is intended to focus on the provision of new infrastructure and should not be used to remedy pre-existing deficiencies in infrastructure provision unless those deficiencies will be made more severe by new development.
The levy can be used to increase the capacity of existing infrastructure or to repair failing existing infrastructure, if that is necessary to support development.
In London, the regulations restrict spending by the Mayor to funding roads or other transport facilities, including Crossrail, to ensure a balance between the spending priorities of the boroughs and the Mayor.
Local authorities must allocate at least 15% of levy receipts to spend on priorities that should be agreed with the local community in areas where development is taking place. This can increase to a minimum of 25% in certain circumstances (see below for further details).
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What is the neighbourhood portion of the levy?
Fifteen per cent of Community Infrastructure Levy charging authority receipts are passed directly to those Parish and Town Councils (in England) and Community Councils (in Wales) where development has taken place (see Regulation 59A for details). Where chargeable development takes place within the local council area, up to £100 per existing council tax dwelling can be passed to the Parish, Town or Community Council (see Regulation 58A for details) this way each year to be spent on local priorities (see Regulation 59C for details). Areas could use some of the neighbourhood pot to develop a neighbourhood plan where it would support development by addressing the demands that development places on the area.
In England, communities that draw up a neighbourhood plan or neighbourhood development order (including a community right to build order), and secure the consent of local people in a referendum, will benefit from 25 per cent of the levy revenues arising from the development that takes place in their area. This amount will not be subject to an annual limit. For this to apply, the neighbourhood plan must have been made (see section 61E of the Town and Country Planning Act 1990 as applied to neighbourhood plans by section 38C of the Planning and Compulsory Purchase Act 2004) before a relevant planning permission first permits development (as defined by Regulation 8, as amended by the 2011 Regulations and the 2014 Regulations of the Community Infrastructure Levy Regulations). This higher amount will also apply when the levy is paid in relation to developments which have been granted permission by a neighbourhood development order (including a community right to build order) (see related guidance here). Neighbourhood planning does not apply in Wales, so neither does the enhanced neighbourhood funding element linked to it.
Figure: relationship between the levy and neighbourhood plans in England
Parish Council ✓
Neighbourhood Plan ✓
= 25% uncapped, paid to Parish
Parish Council ✓
Neighbourhood Plan ✗
= 15% capped at £100/dwelling, paid to Parish
Parish Council ✗
Neighbourhood Plan ✓
= 25% uncapped, local authority consults with community
Parish Council ✗
Neighbourhood Plan ✗
= 15% capped at £100/dwelling, local authority consults with community
In areas where there is a neighbourhood plan or neighbourhood development order in place, charging authorities can choose to pass on more than 25% of the levy, although the wider spending powers that apply to the neighbourhood funding element of the levy will not apply to any additional funds passed to a Parish, Town or Community Council. Those additional funds can only be spent on infrastructure, as defined in the Planning Act 2008 for the purposes of the levy.
Charging authorities do not have to pass on a neighbourhood portion of a levy charge if they issued the liability notice for that development before 25 April 2013.
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Where there is no Parish, Town or Community Council, who receives the neighbourhood portion?
Communities without a Parish, Town or Community Council will still benefit from the 15% neighbourhood portion (or 25% portion, if a neighbourhood plan or neighbourhood development order has been made). If there is no Parish, Town or Community Council, the charging authority will retain the levy receipts but should engage with the communities where development has taken place and agree with them how best to spend the neighbourhood funding. Charging authorities should set out clearly and transparently their approach to engaging with neighbourhoods using their regular communication tools e.g. website, newsletters, etc. The use of neighbourhood funds should therefore match priorities expressed by local communities, including priorities set out formally in neighbourhood plans.
The Government does not prescribe a specific process for agreeing how the neighbourhood portion should be spent. Charging authorities should use existing community consultation and engagement processes. This should include working with any designated neighbourhood forums preparing neighbourhood plans that exist in the area, theme specific neighbourhood groups, local businesses (particularly those working on business led neighbourhood plans), and using networks that ward councillors use. Crucially this consultation should be at the neighbourhood level. It should be proportionate to the level of levy receipts and the scale of the proposed development to which the neighbourhood funding relates.
Where the charging authority retains the neighbourhood funding, they can use those funds on the wider range of spending that are open to local councils (see ‘Can the levy be used to deliver Suitable Alternative Natural Greenspace?’, and Regulation 59C). In deciding what to spend the neighbourhood portion on, the charging authority and communities should consider such issues as the phasing of development, the costs of different projects (e.g. a new road, a new school), the prioritisation, delivery and phasing of projects, the amount of the levy that is expected to be retained in this way and the importance of certain projects for delivering development that the area needs. Where a neighbourhood plan has been made, the charging authority and communities should consider how the neighbourhood portion can be used to deliver the infrastructure identified in the neighbourhood plan as required to address the demands of development. They should also have regard to the infrastructure needs of the wider area.
The charging authority and communities may also wish to consider appropriate linkages to the growth plans for the area and how neighbourhood levy spending might support these objectives.
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When is the neighbourhood portion paid?
Charging authorities and Parish, Town and Community Councils are free to decide the timing of neighbourhood funding payments themselves. However, in the absence of such an agreement, Regulation 59D specifies that the neighbourhood portion of levy receipts must be paid every six months, at the end of October and the end of April.
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Can the neighbourhood portion be paid ‘in kind’, as land or infrastructure, as well as cash?
Developers may offer to pay the levy as land or infrastructure as well as by cash, if the charging authority chooses to accept these alternatives. However, the relevant percentage of the cash value of levy receipts must be passed on to a Parish, Town or Community Council in cash.
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What happens where development straddles a Parish, Town or Community Council administrative boundary?
Where development straddles the boundaries of Parish, Town or Community Councils’ administrative areas, each council receives a share of the levy which is proportionate to the gross internal area of the development within their administrative area. For example, if a development crosses two Parish, Town or Community Council administrative areas with 50 per cent in one parish and 50 per cent in the other, each council receives 50 per cent of the neighbourhood portion, up to the level of the annual limit for their area. The total Levy liability across the development is used to calculate the neighbourhood funding figure, to take account of sites with variable rates.
There may be occasions when development crosses more than one Parish or Town Council administrative area and where one or more of those areas has a neighbourhood development plan in place (so receives 25 per cent) and one or more of those areas does not. There may also be occasions where part of a development is granted planning permission by a neighbourhood development order, and part is not. In these cases, the Parish or Town Council receives a proportionate amount of the levy payment based on how much of the gross internal area of the development is in an area for which there is a neighbourhood plan, or was granted permission by a neighbourhood development order.
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What can neighbourhood funding be spent on?
The neighbourhood portion of the levy can be spent on a wider range of things than the rest of the levy, provided that it meets the requirement to ‘support the development of the area’ (see Regulation 59C for details). The wider definition means that the neighbourhood portion can be spent on things other than infrastructure (as defined in the Community Infrastructure Levy regulations). For example, the pot could be used to fund affordable housing where it would support the development of the area by addressing the demands that development places on the area.
Parish, Town and Community Councils should discuss their priorities with the charging authority during the process of setting the Levy rate(s).
Once the levy is in place, Parish, Town and Community Councils should work closely with their neighbouring councils and the charging authority to agree on infrastructure spending priorities. If the Parish, Town or Community Council shares the priorities of the charging authority, they may agree that the charging authority should retain the neighbourhood funding to spend on that infrastructure. It may be that this infrastructure (e.g. a school) is not in the Parish, Town or Community Council’s administrative area, but will support the development of the area.
If a Parish, Town or Community Council does not spend its levy share within five years of receipt, or does not spend it on initiatives that support the development of the area, the charging authority may require it to repay some or all of those funds to the charging authority (see Regulation 59E(10) for details).
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Do the planning obligations restrictions apply to neighbourhood funds?
Regulation 123(2) , as amended by the 2014 Regulations, prevents section 106 planning obligations being used in relation to those things that are intended to be funded through the Levy by the charging authority. While Parish, Town and Community Councils are not required to spend their neighbourhood funding in accordance with the charging authority’s priorities, we expect Parish, Town and Community Councils to work closely with the charging authority to agree priorities for spending the neighbourhood funding element.
Parish, Town and Community Councils should consider publishing their priorities for spending the neighbourhood funding element, highlighting those that align with the charging authority. Where a neighbourhood plan has been made, it should be used to identify these priorities.
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How should the Parish, Town or Community Council report on its levy spending?
Parish, Town and Community Councils must make arrangements for the proper administration of their financial affairs (see Section 151 of the Local Government Act 1972). They must have systems in place to ensure effective financial control (see Accounts and Audit (England) Regulations 2011 and Accounts and Audit (Wales) Regulations 2005). These requirements also apply when dealing with neighbourhood funding payments under the levy.
For each year when they have received neighbourhood funds through the levy, Parish, Town and Community Councils must publish the information specified in Regulation 62A. They should publish this information on their website or on the charging authority’s website. If they haven’t received any money they do not have to publish a report, but may want to publish some information to this effect in the interests of transparency.
There is no prescribed format. Parish, Town and Community Councils may choose to combine reporting on the levy with other reports they already produce. The levy neighbourhood funding income and spending will also be included in their overall published accounts but are not required to be identified separately in those accounts.
Where a charging authority holds and spends the neighbourhood portion on behalf of the local community, it should ensure that it reports this as a separate item in its own accounts (see ‘How do charging authorities report their levy income and spending?’).
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Can the levy be used to deliver Suitable Alternative Natural Greenspace?
European legislation (the Habitats and Wild Birds Directives), transposed into the Conservation of Habitats and Species Regulations 2010, as amended, requires local authorities to avoid or mitigate the impact of increased human activity on certain habitats and species in European protected areas, namely Special Areas of Conservation and Special Protection Areas. For more information on legal obligations regarding European sites, see ‘What are the legal obligations on local planning authorities and developers regarding European sites designated under the Birds or Habitats Directives, protected species and Sites of Special Scientific Interest?‘.
Local authorities are responsible for securing adequate mitigation for European site impacts. They may choose to use their levy income to provide new or improved areas of open space (such as Suitable Alternative Natural Greenspace (SANGS) or similar approaches) which provide recreation space to deflect visitors, as part of a suite of measures to reduce the impacts on protected sites arising from development. Suitable Alternative Natural Greenspaces are open space and are within the levy definition of infrastructure.
If delivering Suitable Alternative Natural Greenspace, local authorities must put in place a system which ensures that mitigation is delivered at a time and place when it will be effective. In order to ensure compliance with the Directives, the local authority must be clear that it intends to prioritise the use of the levy to deliver Suitable Alternative Natural Greenspace and maintain their effectiveness in the long term. Where it is appropriate to do so, this should be set out in the relevant Plan (the Local Plan in England, Local Development Plan in Wales, and the London Plan in London) and could also be included in the published Regulation 123 list.
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Can the levy be spent outside a charging area?
Charging authorities may pass money to bodies outside their area to deliver infrastructure that will benefit the development of the area. For example, these bodies may include the Environment Agency for flood defence or, in two tier areas, the county council, for education infrastructure.
If they wish, charging authorities may pool funds from their respective levies to support the delivery of infrastructure that benefits the wider area, for example, a larger transport project where they are satisfied that this would also support the development of their own area. This could include, for instance, funds to support the delivery of Suitable Alternative Natural Greenspace. Authorities are strongly encouraged to consider growth planning priorities for their area at Local Enterprise Partnership or equivalent broad area level in determining levy spending priorities.
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Are charging authorities allowed to borrow against future levy income?
Charging authorities are not currently allowed to borrow against future levy income. However, the levy can be used to repay expenditure on infrastructure that has already been incurred. Charging authorities may not use the levy to pay interest on money they raise through loans.
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What about administrative costs?
Charging authorities can use funds from the levy to recover the costs of administering the levy. Regulation 61, as amended by the 2014 Regulations allows them to spend up to five per cent of their total levy receipts on administrative expenses. This is to ensure that the overwhelming majority of revenue from the levy is directed towards infrastructure provision.
Where an authority spends less than its permitted allowance on administrative expenses, it must transfer the remaining allowance for use on capital infrastructure projects.
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What can administrative expenses include?
Administrative expenses associated with the levy include the costs of the functions required to establish and run a levy charging scheme. These functions include levy set-up costs, such as consultation on the levy charging schedule, preparing evidence on viability or the costs of the levy examination. They also include ongoing functions like establishing and running billing and payment systems, enforcing the levy, the legal costs associated with payments in-kind and monitoring and reporting on levy activity.
To help charging authorities with initial set up costs, the regulations allow for a ‘rolling cap’ on administrative expenses (see Regulation 61, as amended by the 2014 Regulations). This covers the period comprising the first part year that an authority sets a levy and the following three financial years taken as a whole. From year four onwards of an authority’s levy operation, the restriction works as a fixed in-year cap, meaning that an authority may spend up to five per cent of receipts received in-year by the end of that year on its administrative expenses.
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What about areas where the collecting authority and the charging authority are different?
In London, where boroughs collect the levy on behalf of the Mayor, a borough may keep up to four per cent of those receipts to fund its administrative costs. The remainder is passed to the Mayor, up to the five per cent cap.
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How do charging authorities report their levy income and spending?
To ensure that the levy is open and transparent, charging authorities must prepare short reports on the levy. Charging authorities must publish a report on their website by 31 December each year, for the previous financial year. They may prepare a bespoke report or use an existing reporting mechanism, such as the annual monitoring report which reports on their development plan. Where a charging authority holds and spends the neighbourhood portion on behalf of the local community, it should ensure that it reports this as a separate item.
Authorities may pool levy funding, and/or combine it with other sources of funding for investment in strategic infrastructure, such as the Growing Places Fund. In such cases, charging authorities should report on committed funding in a way that illustrates the respective contributions from different sources
Parish, Town and Community Councils must also report on their levy income and spending.