HMRC has issued guidance on paying the new apprenticeship levy, which comes into force from 6 April 2017 for companies with an annual pay bill of more than £3m
The annual pay bill is all payments to employees that are subject to employer Class 1 secondary National Insurance contributions (NICs) and includes payments to all employees earning below the lower earnings limit and the secondary threshold, as well as employees under the age of 21 and apprentices under the age of 25.
The £3m rule also applies to companies which are connected to other companies or charities for employment allowance which in total have an annual pay bill of more than £3m.
Employers will have an apprenticeship levy allowance of £15,000 each year, reducing any payment by this amount. It is not possible to carry over any unused allowance into the next tax year.
Anyone who starts or stops being an employer part way through the tax year can use the full annual apprenticeship levy allowance against the amount of the levy owed.
Employers can decide how to split the allowance between their PAYE schemes or with any connected companies or charities. This will allocation will need to be reported the first time they pay the apprenticeship levy and cannot be changed during the tax year.
Employers must continue to apply the levy allowance that was allocated at the beginning of the tax year if, part way through the year they either become a connected employer (such as by merging with or acquiring another company), or the structure of their group of connected companies or connected charities changes.
Public bodies each get a full apprenticeship levy allowance as they are not considered to be connected companies. NHS trusts and other health service bodies (such as Scottish Health Boards, Welsh Local Health Boards or Irish Health and Social Care Trusts) are considered to be companies and therefore have to follow the connected companies rules.
Public bodies which are charities must follow the rules for connected charities.
The apprenticeship levy is charged at 0.5% of a company’s annual pay bill, and HMRC’s basic PAYE tools will provide help with calculating this figure.
HMRC warns that companies still need to pay apprenticeship levy even if they already contribute to an industry-wide training levy arrangement, for example the construction industry training board levy.
From 6 April 2017, companies will need to report to HMRC how much apprenticeship levy they owe each month using the employer payment summary (EPS). They will need to include the amount of the annual apprenticeship levy allowance allocated to that PAYE scheme, plus the amount of apprenticeship levy owed to date in the current tax year.
Reporting begins from the start of the tax year if the company’s annual pay bill (including any connected companies or charities) in the previous tax year was more than £3m, or if they company thinks it is likely to exceed £3m in that year. If the annual pay bill unexpectedly increases to more than £3m, then companies need to start reporting when that happens.
Companies that have started paying apprenticeship levy will need to continue reporting it until the end of the tax year even if their annual pay bill turns out to be less than £3m. Connected companies or charities will each need to tell HMRC how much apprenticeship levy they owe.
Companies must keep records for at least three years after the tax year they relate to.
If they find errors in the total annual pay bill at the end of the tax year, they must submit an extra EPS with the correct apprenticeship levy for the full tax year and pay what is owed.
Employers with modified PAYE schemes will need to account for NICs as usual and use a best estimate of all earnings that are subject to Class 1 secondary NICs to check if they need to pay the apprenticeship levy.
They will need to submit an EPS each month using these estimated figures, and at the end of the tax year, will have to check the estimated pay bill against the actual figures for the tax year, and submit an additional EPS to correct any difference.
The apprenticeship levy will be paid each month through the PAYE process. Any overpayments during the year will be refunded as a PAYE credit. Apprenticeship levy payments are a deductible expense for corporation tax.
The guidance also provides specific advice for schools. For maintained schools, the local authority is the employer. Each local authority has an annual allowance of £15,000. For voluntary-aided schools, foundation schools and academies, the governing body is the employer. Each governing body will be entitled to an allowance of £15,000. Multi-academy trusts will get a single annual allowance of £15,000.
If a school becomes an academy part way through a tax year, the academy’s governing body will be responsible for the apprenticeship levy from this point and get a full allowance of £15,000.