PAYROLL INSIGHT
The apprenticeship levy
Samantha Mann MCIPPdip, CIPP senior policy and research officer, outlines key aspects and offers helpful advice and guidance
F rom 6 April 2017, employers will need to begin processing the apprenticeship levy by paying 0.5% of the amount of their pay bill (see below), less the levy allowance, to HM Revenue & Customs (HMRC) each tax month along with remittances for pay as you earn (PAYE) income tax and National Insurance contributions (NICs). Those employers that had a pay bill of less than £2.8 million in 2016–17 and predict that their pay bill will not exceed £3 million during the 2016–17 tax year, will not need to engage with the apprenticeship levy. All levy-paying employers will fund the Government’s aspiration to achieve 3,000,000 apprenticeship starts by 2020. Pay bill The ‘pay bill’ is made up of the total amount of employee earnings (such as wages/salary, bonus and commission) that are subject to Class 1 NICs, including all employee earnings below the lower earnings limit (and below the primary/ secondary threshold). Though employers pay NICs at 0% rate for employees under the age of 21 and for apprentices under the age of 25, their pay will still need to be included within the pay bill total. Annual levy allowance An annual levy allowance of £15,000 will be available to offset against the apprenticeship levy. The allowance will be
applied cumulatively across the tax year at the rate of £1,250 per tax month. The following is a simple example used in HMRC’s guidance for software developers (http://bit.ly/2hPshKj). Example An employer’s regular monthly pay bill is £300,000
April 2017, what they intend to do with the apprenticeship levy allowance – will they apportion/ allocate some or all of it? This decision needs to be made before the start of the tax year and communicated to whomever is responsible for each affected payroll.
...allowance will be applied cumulatively across the tax year...
Month 1 £300,000 x 0.5% = £1,500 levy
Cumulative levy allowance = £1,250 Levy payable for month 1: £1,500 - £1,250 = £250
Month 2 £600,000 (i.e. £300,000 + £300,000) x 0.5% = £3,000
This sounds an obvious and simple step but, as we all know, in payroll nothing is obvious or simple. Complexities need to be considered well in advance and communicated once decisions are reached. Don’t assume that your payroll services provider will prompt you for this information – they may be unaware of the full facts. ● Group companies/charities – The apprenticeship levy allowance of £15,000 can be allocated at the start of the tax year between connected companies or charities. The rules that dictate connections for this purpose are the same as those that apply for the Class 1 NICs employment allowance. Whatever allowance is applied at the outset of the tax year must continue
Cumulative levy allowance = £2,500 Levy payable to month 2 is £3,000 - £2,500 = £500 Levy paid in month 2 = levy payable to month 2 minus levy paid to month 1 = £500 - £250 = £250
Months 3 to 12 – the process in Month 2 is repeated to the end of the tax year.
Apportionment/allocation Employers that are aware of their complexities either because of connected groups or multiple PAYE schemes will need to consider, well in advance of 6
| Professional in Payroll, Pensions and Reward | February 2017 | Issue 27 18
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