We published an article back in November 2016 regarding the Apprenticeship Levy and the Levy Allowance . HMRC has now published additional guidance which gives more information about when payment will be required, how much will need to be paid, the reporting requirements and how the Levy will be applied over certain specific sectors.
When Payment is Required
If you are an employer, and you have an Apprenticeship Levy liability, you will need to make payment each month from 6thApril 2017. You will have a liability if you:
- have an annual pay bill of more than £3 million or you
- are connected to other companies or charities for Employment Allowance purposes where the total annual pay bill is more than £3 million
Your annual pay bill consists of all payments that are made to employees which are subject to employer Class 1 secondary National Insurance contributions (NICs). This would include all wages, bonuses and commissions, and should include payments to:
- all employees earning below the Lower Earnings Limit and the Secondary Threshold
- all employees under the age of 21
- all apprentices under the age of 25
The calculation of your annual pay bill should not include:
- any earnings made to employees who are under the age of 16
- any earnings made to employees who are not subject to UK NIC legislation and
- any benefits in kind on which Class 1A NICs are payable, even where these are taxed through your payroll
How Much Are You Required to Pay?
If you are an employer who is not connected to another company or charity, you will be entitled to an Apprenticeship Levy allowance of £15,000 each year.
This Apprenticeship Levy allowance reduces the amount of Apprenticeship Levy you have to pay by £15,000 over the tax year. As the Apprenticeship Levy is calculated as being 0.5% of your annual pay bill, this ensures that only those employers with an annual pay bill of more than £3 million will pay the levy.
Any unused allowance cannot be carried over into the next tax year, and any connected companies or charities are only entitled to one £15,000 allowance which can be shared between them.
If a company starts or stops being an employer part way through a tax year, they can use their full annual Apprenticeship Levy allowance against the amount of the levy that they owe.
Allocating Your Allowance
If you are a connected company or charity, your Apprenticeship Levy allowance of £15,000 can be split between:
- all of your PAYE schemes
- any connected companies or charities
It is down to the individual group of companies to decide how best to split the allowance between their PAYE schemes or with their connected companies or charities. They will be required to report how the allowance has been allocated the first time they have to pay the Apprenticeship Levy. The share of the allowance cannot be changed during the tax year.
Employers must continue to apply the levy allowance allocated at the beginning of the tax year if, at any stage in the tax year:
- they become a connected employer (by merging with or by acquiring another company) or
- the structure of the group of connected companies or charities is changed (in the case of a demerger from another company, for example)
Connected companies or charities must decide the allocation of their levy allowance at the beginning of the next tax year.
Public bodies get a full Apprenticeship Levy allowance each, on the basis that they are not deemed to be connected companies.
Any public bodies which are registered charities are obliged to follow the rules for connected charities.
NHS trusts and other health service bodies (for example Scottish Health Boards, Welsh Local Health Boards or Irish Health and Social Care Trusts) are treated as companies and are obliged to follow the connected company’s rules.
Calculating Your Liabilities
As mentioned above, the Apprenticeship Levy is charged at 0.5% of a company’s annual pay bill.
To calculate how much a company needs to pay, during the first month of the tax year they should:
- Divide their Apprenticeship Levy allowance by 12 and then
- Subtract this figure from 0.5% of their monthly pay bill.
In each subsequent month in the tax year they should:
- Calculate their total pay bill for the year to date.
- Total up their entire monthly levy allowances for the year to date.
- Subtract the levy allowance figure from the 0.5% of total pay bill figure and then
- Subtract the total levy they have paid so far in the year to date.
Where an employer starts paying the levy mid-way through a tax year, they will need to work out how much annual allowance has been accumulated in the year to date. To do this, they need to divide the full annual allowance by 12 before multiplying this figure by the number of months since the beginning of the tax year. This is the amount of annual allowance they can claim for the first monthly reporting of the levy.
Any unused annual allowance can be carried forward to the next month, as long as this is within the same tax year.
Companies who are liable to pay the Apprenticeship Levy will need to pay even if they already contribute to an industry-wide training levy scheme.
The reporting rules state that with effect from 6 April 2017, companies will need to tell HMRC how much Apprenticeship Levy they are liable to pay each month:
- from the start of the tax year if:
- their annual pay bill in the previous tax year was more than £3 million (including any connected companies or charities) or
- they anticipate that their annual pay bill (including any connected companies or charities) will be more than £3 million for the tax year
- if their annual pay bill for all connected companies or charities unexpectedly exceeds £3 million – they should start reporting when this happens
If a company starts paying the Apprenticeship Levy, they are required to carry on reporting it until the end of the tax year even if their annual pay bill turns out to be less than £3 million.
All connected companies or charities are required to tell HMRC how much Apprenticeship Levy they owe.
Employers should report their Apprenticeship Levy each month using their Employer Payment Summary (EPS) and must include the following:
- the amount of the annual Apprenticeship Levy allowance allocated to that particular PAYE scheme and
- the total amount of Apprenticeship Levy that they owe to date within the current tax year
Companies are not required to report Apprenticeship Levy on their EPS if they did not have to pay it in the current tax year.
Companies must keep a record of any and all information used to calculate their levy payments for a minimum of 3 years after the tax year which they relate to.
Changes to Your Pay Bill
Companies are required to report any changes to the Apprenticeship Levy as a result of changes to their pay bill on their next EPS.
If any errors in the total annual pay bill are identified at the end of the tax year, an extra EPS must be submitted showing the correct Apprenticeship Levy for the full tax year. The company must also pay what they owe.
Employers with Modified PAYE Schemes
If an employer runs a modified PAYE scheme, they will need to account for NICs as usual.
The company should use a best estimate of all earnings that are expected to be subject to Class 1 secondary NICs to determine whether they need to pay the Apprenticeship Levy. They will need to submit an EPS each month reporting these estimated figures.
At the end of the tax year, they will also be required to:
- compare the estimated pay bill against the actual pay bill figures for the tax year
- submit an additional EPS to correct any difference and to pay any Apprenticeship Levy owed
How to Pay
Any payments of Apprenticeship Levy should be made each month through the PAYE process, in the same way the employer pays their Income Tax or National Insurance contributions.
If an employer overpays the Apprenticeship Levy during a tax year, they will receive a refund as a PAYE credit.
Apprenticeship Levy payments are considered to be a deductible expense for Corporation Tax.
When the Levy Applies in Specific Sectors
Any franchises with a pay bill of over £3 million annually (including any connected companies or charities) will have to pay the levy. They will have a single annual allowance of £15,000 for all of the franchises under shared control. They can elect to share the allowance across the franchises under control or across their PAYE schemes.
Off-payroll Working in the Public Sector
Any payments made by a public sector employer to a personal service company, a partnership or other individual, and which are considered to be subject to the off-payroll working reforms must be included within the public sector employer’s pay bill. This is the case because the public sector employer will be liable to pay Class 1 NICs for any workers engaged through such intermediaries from April 2017.
These changes do not apply for any services provided to clients in the private sector through intermediaries such as a personal service companies.
Any short lived companies, for example special purpose vehicles, will be required to pay the levy if they are liable to pay Class 1 secondary NICs. They will have a full £15,000 levy allowance if the special purpose vehicle is set up part way through the tax year. They will need to check whether they are connected to another company or charity at the start of the following tax year.
Managed Service Companies
Managed service companies will have to pay the levy if they have an annual pay bill of more than £3 million. If they are connected to another employer, they may have to pay the levy, even if their pay bill is less than £3 million.
Employment or Recruitment Agencies
Employers will be required to pay the levy if all the following conditions apply:
- they are responsible for the supply of labour (including subcontractors) to a client
- they have a liability to pay Class 1 secondary NICs on the earnings of those workers and
- their pay bill exceeds £3 million (including any connected companies or charities)
Any joint venture partnerships where 2 companies each have exactly a 50% share in a further company would not be connected to any other company, as neither company would have overall control. Each controlling company and the joint venture would be entitled to their own levy allowance of £15,000.
Other types of joint ventures will be entitled to a full £15,000 allowance if they are set up part way through a tax year. They would be required to check if they are connected to another employer at the beginning of the following tax year to calculate their allowance for the following year.
For any voluntary-aided schools, foundation schools, free schools or academies, the governing body is considered to be the employer. Each governing body will be entitled to an allowance of £15,000.
For all other maintained schools, the appropriate local authority is the employer. The local authority remains legally responsible for payment of the Apprenticeship Levy for schools under their control, even where responsibility for payroll, including payment of Class 1 secondary NICs, has been delegated. Each local authority has an annual allowance of £15,000.
For faith schools, the employer is the local authority where the school is voluntary-controlled, otherwise it will be the governing body.
Any multi-academy trusts will get a single annual allowance of £15,000.
If a school becomes a voluntary-aided school, foundation school, free school or academy part way through a tax year, the academy’s governing body will be responsible for the Apprenticeship Levy from this point and get a full allowance of £15,000.