The new Apprenticeship Levy

Funding for apprenticeships is changing with the introduction from 6th April of a levy for all UK employers with an annual PAYE bill of over £3million, and will be required to pay an additional 0.5% of employers’ National Insurance contribution.

The new levy also applies to businesses that do not currently employ apprentices and if the deposits made under the regime are not used to fund apprenticeships, all funds will expire after eighteen months.

How is the £3million PAYE bill calculated?

The levy will be charged at a rate of 0.5% of the annual pay bill with an allowance of £15,000 a year, which is split into twelve monthly allowances of £1,250, to then be used to offset the additional contribution. This means the levy is only payable if the PAYE bill exceeds £3 million in a given year. If a company has more than one PAYE scheme or has multiple companies in a group, the PAYE bill is aggregated to determine if the total exceeds the £3million limit.

The annual PAYE bill is calculated as a total of all payments made to employees that are subject to class 1 secondary National Insurance contributions, including;

  • employees under the age of 21;
  • apprentices under the age of 25, and
  • employees with earning below the lower earnings limit and the secondary threshold.

The payment is made through the Pay as You Earn (PAYE) process, reported on the P32 form and paid to HMRC along with the PAYE & NIC liabilities each month.

The allowance

Companies can choose which of the PAYE schemes will benefit from the allowance and have the option to allocate a small sum across numerous schemes. However, the HMRC must be notified at the start of the tax year as to how the allowance is to be allocated and it is not possible to make changes to this allocation part-way through the tax year.

Calculating what is payable

The levy allowance will operate on a monthly basis and will accumulate throughout the tax year. If the full £1,250 monthly allowance is not used, it can be carried forward to the next month.

If there are multiple PAYE schemes and the full £15,000 allowance is not allowed, companies can offset the unused amount against another scheme once the tax year has ended.

HMRC will top up the digital accounts with an additional 10% of the amount that the employer pays each month.

Any apprenticeship levy payment to HMRC will be allowable for Corporation Tax.

Example

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

Paying the levy

If the levy is payable, this should be declared and included it in the company’s usual PAYE payment to HMRC by the 19th (or 22nd if reported electronically) of the following month. The first submission in which this should be declared is May 2017. Companies will need to set up an account with HMRC to be able to make the payment, which can then be accessed to pay for apprenticeship training.

Further details of the new levy can be found here.

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