Are you affected by the Apprenticeship Levy?

Are you affected by the Apprenticeship Levy?  No? You might need to think again.

The Apprenticeship Levy was announced in the Summer Budget 2015 and is basically a levy on employers in order to fund new Apprenticeships.

What is it and what is it charged on?

The Levy will be charged at a rate of 0.5% of an Employer’s total pay bill but each employer will have an allowance of £15,000 per annum to offset against their Levy payment.  In practice therefore, the Levy will only be payable with regard to “pay bills” in excess of £3 million per year.  It applies from 6 April 2017.

Per HMRC guidance, your annual “pay bill” is all payments to employees that are subject to employer Class 1 secondary National Insurance contributions (NICs) such as wages, bonuses and commissions.  It also includes payments to employees earning below the Lower Earnings Limit and the Secondary Threshold plus employees under the age of 21 and apprentices under the age of 25.  So the “pay bill” includes items which you might think would be exempt.

Still think it doesn’t apply to you?

In determining the size of the “pay bill”, it is necessary to take into account the pay bills of connected companies. If companies are connected with one another at the beginning of the tax year, they form a “company unit” for that tax year.  Whilst each of them is entitled to a Levy Allowance for the tax year, the members must decide what amount of the Levy Allowance each of them is to be entitled to but the total claimed for each company unit cannot exceed £15,000 for the tax year.

So groups of companies with a number of separate PAYE schemes which are individually below £3 million can still be caught.

And finally …

The final potential sting in the tail is the way the Levy is calculated.  The Levy is calculated on a monthly basis as follows:

For the first month of the tax year:

• Divide your Apprenticeship Levy allowance by 12.
• Subtract this figure from 0.5% of your monthly pay bill.

For each of the following months:

• Calculate your total pay bill for the year to date.
• Add up your monthly levy allowance for the year to date.
• Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date.
• Subtract the amount of the levy you’ve paid for the year to date.

Sounds fine but consider the situation where a company pays annual performance related or discretionary bonuses.  Because the Levy is calculated on a monthly basis, it is not difficult to envisage a situation whereby the annual pay bill is less than £3 million, but there is a month when bonuses are paid where 0.5% of the monthly pay bill exceeds the monthly Levy Allowance.  The company will therefore be caught by the legislation in that month.

As total pay bill and levy allowance are cumulative throughout the year, companies are more likely to be caught in this way when bonuses are paid early in the tax year as there may not have been sufficient time for the cumulative nature of the calculations to smooth out the anomaly.

So …… are you affected by the Apprenticeship Levy?

If you think you might be affected or for more information on Employment Tax issues, contact Louise Lane on 014522 531341 or email louise.lane@wrightvigar.co.uk – she would be delighted to help you.