Apprenticeship Levy: Are You Preparing?
The 6th April 2017 sees the introduction of a new employment tax on United Kingdom employers. The way the government funds apprenticeships in England is changing, and Scotland Wales and Northern Ireland, each having their share of the levy, will have to decide how apprenticeship spending will take place.
This new levy will be charged at a rate of ½% of an employer’s pay bill but there is also an annual allowance of £15,000 to offset against this liability. So, in reality only employers with annual pay bill greater than £3 million will pay the levy.
An employer’s pay bill is based on the total employee earnings subject to Class 1 secondary National Insurance Contributions (NICs). This already includes remuneration and profit from employment such as wages, bonuses, commissions that NICs are paid on. However, this also includes the total earnings including amounts that are not included when calculating employer NICs such as earnings below the Secondary Threshold (ST) and also the earnings of employees under 21 and apprentices under 25 which applies a zero rate of Class 1 secondary NICs. Pay bill does not include benefits in kind that are subject to Class1A NICs. Foreign workers with no Class 1 liability or where the employer has no place of business in the European Union or non EU diplomatic missions are not counted in the pay bill.
The offset levy allowance of £15,000 applies each tax year to offset against the levy liability, but this is subject to the connected companies and charities rule.
The levy is calculated monthly with the operation of the annual allowance being offset on a cumulative pro-rata basis. So in April there is 1/12th, May 2/12th and so on until at the finish of the tax year the levy is 12/12ths.
Employers only need to report calculate and report the apprenticeship levy where they are likely to have a liability. Employers with a prior year pay bill of under £2.8m who are likely to not exceed £3m in the new tax year can exempt themselves from any calculation and reporting responsibility as long as their pay bill does not breach £3m.
For those who do have an obligation, the levy forms part of the Employer Payment Summary (EPS) either within their payroll service or by using Basic PAYE Tools:
- Cumulative levy due to date amount
- Tax Year and Tax Month applicable
- Mandatory input of the total annual levy allowance amount allocated (Max £15,000.00, Min inclusive £0.00)
Changes are being made to the Finance Bill 2016 to allow connected organisations to share the levy allowance. If this applies, each employer will claim their portion of the allowance against their levy liability due, but no more than £15,000 can be claimed by employers sharing. An employer with more than one PAYE scheme will have the option to split the allowance as they choose across their PAYE schemes. This will enable the employer to divide the allowance they have between their multiple PAYE schemes (but not exceed the total £15,000 annual levy allowance) and calculate the levy due accordingly. This split must be agreed at the beginning of the tax year and fixed. Employers are not be able to change the amount of levy allowance in year.
To arrive at the monthly “pay bill” the employer will add all the employee earnings subject to Class 1 secondary NICs from the beginning of the tax year. Then the 0.5% rate will be applied to this sum to calculate the levy liability. Employers will then offset the cumulative monthly allowance against the cumulative monthly levy liability in order to calculate the apprenticeship levy payable. Then the amount previously paid is offset to determine the amount owed in the current tax month.
Where an employer operates for only part of a year, e.g. a business starts up or closure part way through the year, the full annual allowance of £15,000 for the tax year can be used.
Employers need to consider:
- Whether the Pay bill can be identified
- Are they part of a connected organisation
- Will the total pay bill be less than £2.8m
- How is the £15,000 annual offset amount going to be allocated across any business splits
- Who is undertaking the EPS filing
- Will the payments software or service be ready