In the summer 2015 budget the Government announced plans to introduce an apprenticeship levy tax on big businesses as part of the focus to train three million new apprentices by 2020.
Once relevant employers have registered and paid the levy they will be able to access funding through a digital account which allows them to select and pay approved training providers and post apprenticeship vacancies within the businesses. Eventually the aim is to allow this service to be available to all employers by 2020 but initially this will only be available to those paying the levy.
The government will apply a 10 per cent top up on funds meaning that for every £1 paid in by the employers they are able to spend £1.10 and business will have 24 months to spend their funds before they expire.
This key note will focus on the key areas you need to know.
When is the levy coming into effect?
The levy is being introduced in April 2017, however payments are set to be made from May 2017.
Who is obliged to pay?
Any employer who has an annual pay bill of more than £3million will be required to spend 0.5 per cent of their total annual pay bill on the levy. This requirement applies if you are a connected company whose total annual pay bill is more than £3 million.
The apprenticeship levy allowance can be allocated between all your PAYE schemes or any connected companies or charities.
Note: there is only one allowance for connected companies, which is defined on the same principles used for tax purposes (for example, companies linked in a group).
Which employees are included in the bill calculation?
You must include all payments to employees that are subject to employer Class 1 secondary National Insurance Contributions (“NICs”) such as wages, bonuses and commissions and it must include all of the following employees;
- All employees earning below the Lower Earnings Limit and the Secondary Threshold
- Employees under the age of 21
- Apprentices under the age of 25
However, the pay bill excludes:
- Earnings of employees under the age of 16
- Earnings of employees who are not subject to UK NIC legislation
- Earnings on which Class 1A NIC are payable, such as benefits in kind
Calculating your payment
HMRC has prepared a basic PAYE to help you work out how much you need to pay.
For the first month of the tax year:
- Divide your allowance by 12
- Subtract this figure from 0.5 per cent of your monthly pay bill
For each of the following months;
- Calculate your total pay bill for the year to day
- Add up the monthly allowance used for the year so far
- Subtract the total levy allowance from 0.5 per cent of the total pay bill
- Subtract the levy allowance used
- Divide the total by the number of months left
From 6 April 2017, all relevant employers will need to tell HMRC how much Apprenticeship Levy is owed each month and you must keep records of any information you have used to calculate your levy payment for at least 3 years after the relevant tax year.
Are there any penalties?
Yes. The penalties will be fines in-line with those already in existence for failure to make returns on time and to pay tax on time.
To find out more about the issues raised in this post, or to discuss any queries regarding the Apprenticeship Levy get in touch with Michelle Gray or call +44 (0) 161 829 2599.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.