The levy was announced in the 2016 Budget as intending to fund 3 million places for apprentices. The key elements are:
How does this impact on you as an employer?
- the Apprenticeship Levy will be payable by employers in the UK at 0.5% of gross wage costs on a monthly basis in addition to any other industry levy already in place;
- all employers will receive an annual allowance of £15,000 to offset against the payment of the levy, which effectively means the levy will only be payable by employers with total wages in excess of £3 million per year;
- the levy will be payable through the Pay As You Earn (PAYE) system;
- groups of companies will only receive one allowance to offset against their levy. The connected persons rule (similar to the employment allowance) will apply to employers or groups of employers who operate multiple payrolls who will only be able to claim one allowance in total. If one employer does not fully utilise the allowance then the balance can be used against other PAYE schemes after the end of the tax year;
- the levy will apply equally to employers across all sectors with no exception for charities, government bodies etc.;
- the levy will be calculated by reference to the total earnings subject to an employer’s Class 1 National Insurance Contributions;
- as soon as the levy has been paid to HM Revenue & Customs, employers will be able to access this amount for funding apprenticeships through a new digital apprenticeship service account;
- the apprenticeship service account will be topped up by 10% from the Government but must be used within 18 months otherwise the money will not be available for apprenticeship training costs.
For the majority of UK employers (over 90%) no levy will be payable as their total wages bill will be less than £3m a year. However, if your wage bill is in excess of £3m then you will have to pay a levy.
As the charge is based on earnings subject to employers’ Class 1 NIC (the National Insurance assessed on wages through the payroll), there will be no levy on employees seconded from overseas who have an A1 or other certificate of coverage.
There will still be a charge on pensioners, employees paying reduced rate contributions and those with deferment certificates. Also, where part-time staff are employed who earn less than the lower earnings limit and Class 1 NIC would not be payable, these earnings will be specifically included for the purposes of calculating the amount of levy due.
What will affect many more employers though will be the interaction with other pay structures, such as payrolling benefits, salary sacrifice and PAYE Settlement Agreements. While there are plans to restrict the impact of salary sacrifice from April 2017 in certain instances, the main use of salary sacrifice for pensions, child care and cycling schemes will be unaffected. The use of such arrangements has always been tax-efficient, but by reducing the pay on which Class 1 NIC is payable, the employer will reduce the pay for levy purposes as well.
Payrolling benefits will be unaffected by the levy as, even though PAYE tax is assessed on benefits through the payroll, the employer is still required to assess Class 1A NIC in the normal manner, so the pay subject to Class 1 NIC will not be affected.
PAYE Settlement Agreements allow an employer to settle the tax and NIC due on certain benefits to staff directly. These typically include incentive awards and staff entertaining which can, in some circumstances, be otherwise subject to Class 1 NIC (e.g. reimbursed meal costs). Inclusion of such items in a PSA will therefore ring-fence these expenses from the levy calculation.
Getting ready for April
In readying yourself for April you need to:
- in groups of companies, determine in advance which employer will claim the £15,000 allowance or how this is going to be split between companies within the group;
- use your payroll system to calculate and pay over the levy from April;
- ensure any salary sacrifice arrangements or similar planning is implemented prior to April to reduce the levy if possible;
- consider if some benefits, which are currently liable to Class 1 NIC, can be provided in such a way that only a Class 1A NIC liability arises in the future.
If you have any further queries regarding this please do not hesitate to contact your normal Moore Stephens contact.