You may be aware that from 6 April 2017 the government brought in the new apprenticeship levy. But what is it and what does it mean?
What is it?
In short, it is a levy on UK employers in order to fund new apprenticeships. The idea is that the money will go towards an apprenticeships fund from 1 May 2017. Each employer will then be able to access the fund through a digital account and will be able to use the money for their individual needs.
The overall aim is to ‘significantly increase the quantity and quality of apprenticeships in England’ by allowing employers to improve their offering of apprenticeships by using the money from the fund.
Who pays it?
The levy is potentially payable by all employers; therefore, all employers will need to be aware of their apprenticeship levy obligations. There are special rules for ‘connected’ companies and ‘connected’ charities; however, these will not be addressed here.
How much is it?
All employers pay 0.5% of their total annual pay bill; but they each have a £15,000 annual levy allowance, which they can offset against any levy payment. As a result, the levy will only affect employers whose annual pay bill amounts to more than £3 million a year (around 2% of the country’s employers).
For example, if an employer’s annual pay bill amounts to £4 million a year, the amount of levy payable would be £20,000 (0.5% of £4 million) minus the annual levy allowance of £15,000. This would leave a total levy payment of £5,000.
How is it paid?
Employers are required to calculate and pay the apprenticeship levy every month. They should work out the cumulative pay bill to date and then deduct the appropriate proportion of the levy allowance. The good news is that any unused levy allowance is carried forward to the next month, which means that if you are an employer with seasonal peaks in employment need, you are still able to benefit from the full annual allowance over the course of the tax year.
Payments and returns are made through an employer’s normal payroll processes (the PAYE system). The employer must use an RTI return to notify HMRC of its apprenticeship levy liability by the 19th of the following month. There is a late filing penalty notice of £100 even if the return is just 1 day late and if the return has not been submitted within three months of its due date, HMRC can impose a daily £10 penalty. Make sure you keep track of those deadlines.
To clarify, employers only need to engage with HMRC if they have, or are expected to have, a liability to pay this levy. They must also keep safe any records that relate to the levy for three complete tax years.
It is important that all employers are aware of the above and it is recommended that all employers read further into the subject to make sure they have fully got to grips with the apprenticeship levy provisions, whether or not the allowance covers all of their liability.
It is likely that the success of the levy depends on whether it successfully results in more apprenticeships being created. This in turn will probably depend on how easy it is for employers to access the apprenticeship fund. There has been some criticism of the government’s decision to bring the levy in this year, so only time will tell whether it turns out to be a success or not.
If you would like to further discuss any of the information above, please contact George Liley on 01892 701154 or by emailing firstname.lastname@example.org or the Head of Employment, Nick Hobden.