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Apprenticeship Levy

11th May 2017

The Apprenticeship Levy came into effect from April 2017.

The levy will be payable by all employers, whether or not they employ apprentices, at the rate of 0.5% of the gross payroll costs and it will be collected via the PAYE system. Despite representations having been made to Government Ministers it has been confirmed that there will be no exemptions for any employers. Furthermore, it will not be possible for any employer, such as a charity to use part of their Apprentice Levy to help fund the training of volunteers.

How the Apprenticeship Levy will be calculated?

The Apprenticeship Levy will be calculated by reference to the gross payroll costs upon which the employer is due to pay Class 1 (Secondary) National Insurance contributions. Where the employer is regarded as a “public body”, as defined by the Freedom of Information Act 2000, and makes payments to personal service companies which are caught by the revised IR 35 legislation which also came into effect from 6 April 2017, payments made to personal service companies will also need to be included as part of calculating the amount of Apprenticeship Levy due.  

All employers will benefit from a £15,000 allowance, meaning that nothing will be payable by employers with payroll costs below £3million.

Example

An employer with gross payroll costs of £5million will face a levy of £10,000:

Gross payroll costs

5,000,000

Levy calculation @ 0.5%

25,000

Less allowance

(15,000)

Apprenticeship Levy

10,000

Connected employers

The rules relating to connected companies do not apply to unincorporated businesses or single companies.

However, where employers are connected then the 0.5% levy charge will apply to the total amount of the payroll costs after deducting the £15,000 allowance. The question as to whether employers are treated as connected will need to be considered at the beginning of each tax year regardless of any changes which may take place during the year. Finance Act 2016 includes a provision which will enable connected employers to decide how they want to allocate the allowance between the various connected employers.

How will the Apprenticeship Levy will be collected?

The Apprenticeship Levy will be collected via the payroll as part of the charity’s real time reporting obligations. Consideration will need to be given as to whether the £3,000,000 limit has been exceeded based upon the last two years’ payroll costs. Furthermore, it will be the responsibility of each employer to advise HMRC as to whether they are subject to the Apprenticeship Levy.

From May 2017 the Apprenticeship Levy will be paid into the employer’s digital account, with the Government making an additional 10% contribution. It will be from this account where employers will be able to pay for Apprenticeship training.

Other points to consider

Employers will be able to use their Apprenticeship Levy contributions to pay for training (but not salary costs) for those who meet the definition of an apprentice. An employer, where the appropriate accreditation has been obtained from the Skills Funding Agency, can be registered as a provider and draw down from their account the costs for providing any “in-house” training. Employers will initially have 24 months to use their Apprenticeship Levy contributions. It is proposed that from 2018 a system will be introduced for employers to transfer any unused Apprenticeship Levy. Further details to be announced.  

Employers who want to use the Apprenticeship Levy will need to discuss with their training provider how best to optimise the funds. Where the cost of the training is more than the money credited to the digital account, it will need to be topped up. The Government is committed to contributing up to 90% of the additional costs.

If you require any assistance with the Apprenticeship Levy, please contact Nick Bustin, Director of Employment Tax on 020 7969 5578 or nbustin@haysmacintyre.com, or your usual haysmacintyre contact.

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