The Government aims to create 3 million new apprenticeships by 2020 and is funding this through new employer contributions. This Apprenticeship Levy comes into effect from April 6th, 2017.
Employers will be expected to pay the Apprenticeship Levy if they:
- Have an annual pay bill of more than £3 million
- Are connected to other companies or charities for Employment Allowance which in total have an annual pay bill of more than £3 million
This applies to all employers including public and private sector companies, charities and education providers such as universities and academy groups.
The basic charge rate is 0.5% of an employer’s pay bill. This is offset by an annual £15,000 levy allowance, meaning that only those employers with an annual pay bill of more than £3 million will be eligible to contribute. The levy is paid to HMRC through the PAYE system.
Example 1: An employer with an annual pay bill of £5,000,000:
levy sum: 0.5% x £5,000,000 = £25,000
subtracting levy allowance:
£25,000 – £15,000 = £10,000 annual levy payment
Example 2: An employer with an annual pay bill of £2,000,000:
levy sum: 0.5% x £2,000,000 = £10,000
subtracting levy allowance:
£10,000 – £15,000 = £0 annual levy payment
Report how much you owe
From 6 April 2017, you’ll need to tell HMRC how much Apprenticeship Levy you owe each month:
- from the start of the tax year if:
- your annual pay bill (including any connected companies or charities) in the previous tax year was more than £3 million
- you think your annual pay bill (including any connected companies or charities) for the tax year will be more than £3 million
- if your annual pay bill (including any connected companies or charities) unexpectedly increases to more than £3 million – start reporting when this happens
If you’ve started paying Apprenticeship Levy, you’ll need to continue reporting it until the end of the tax year even if your annual pay bill turns out to be less than £3 million.
Connected companies or charities will each need to tell HMRC how much Apprenticeship Levy they owe.
How to Pay
You’ll need to pay the Apprenticeship Levy each month through the PAYE process in the same way you pay Income Tax or National Insurance contributions.
If you’ve overpaid Apprenticeship Levy during the year, you’ll receive a refund as a PAYE credit.
Apprenticeship Levy payments are a deductible expense for Corporation Tax.
When the levy applies in specific sectors
Franchises with an annual pay bill of over £3 million (including any connected companies or charities) will have to pay the levy. You’ll have an annual allowance of £15,000 for all of the franchises under your control. You can choose to share the allowance across the franchises you control or across your PAYE schemes.
Off-payroll working in the public sector
Payments from a public sector employer to a personal service company, a partnership or other individual which are subject to off-payroll working reforms must be included in the public sector employer’s pay bill. This is because the public sector employer will be liable to pay the Class 1 NICs for workers engaged through such intermediaries from April 2017.
These changes don’t apply for services provided through intermediaries such as a personal service company to clients in the private sector.
Short lived companies such as special purpose vehicles will have to pay the levy if they’re liable for Class 1 secondary NICs. You’ll have a full £15,000 allowance if the special purpose vehicle has been set up part way through the tax year. You’ll have to check whether you’re connected to another company or charity at the start of the following tax year.
Managed service companies
If you’re a managed service company you’ll have to pay the levy if you have an annual pay bill of over £3 million. If you’re connected to another employer, you may have to pay the levy if your pay bill is less than £3 million.
Employment or recruitment agencies
You’ll need to pay the levy if all the following apply:
- you supply labour (including subcontractors) to a client
- you pay Class 1 secondary NICs on the earnings of those workers
- your pay bill exceeds £3 million (including any connected companies or charities)
If you’re in a joint venture partnership where 2 companies each have a 50% share in a further company, neither company will have overall control. As a result, the joint venture would not be connected to any other companies. The 2 companies and the joint venture would therefore each be entitled to their own levy allowance of £15,000.
Other types of joint ventures will get a full £15,000 allowance if they’ve been set up part way through the tax year. They’ll need to check if they’re connected to another employer at the start of the next tax year to work out their allowance for the following year.
For voluntary-aided schools, foundation schools, free schools and academies, the governing body is the employer. Each governing body will be entitled to an allowance of £15,000.
For other maintained schools, the local authority is the employer. The local authority remains legally responsible for payment of the Apprenticeship Levy for schools under their control, even if they’ve delegated responsibility for payroll including payment of Class 1 secondary NICs. Each local authority has an annual allowance of £15,000.
The employer for faith schools will be the local authority if the school is voluntary-controlled, otherwise it will be the governing body.
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.