HMRC has published a follow-up technical consultation on draft regulations for the apprenticeship levy which comes into effect in April 2017, and is seeking feedback on amendments introduced in response to comments received during an earlier consultation in autumn of this year
The initial draft regulations specifically related to the calculation, payment and reporting of the apprenticeship levy, including the operation of the £15,000 annual levy allowance.
The draft regulations have now been extended to include other matters relating to the operation of the apprenticeship levy, including: assessment of unpaid apprenticeship levy; recovery of apprenticeship levy by HMRC; retention of records by the employer; recovery of debts from managed service companies to apply the provisions which apply to PAYE debt also to apprenticeship levy debt; and provision for the liability to pay and duty to make a return of apprenticeship levy to extend to continental shelf workers certificate holders, who also have responsibility to operate PAYE and NIC.
They also make it clear (new draft regulation 147D(1) & 147D(2)) that only where an employer has a levy liability, or expects to have a levy liability during the tax year, they will need to engage with reporting the apprenticeship levy to HMRC.
HMRC says these are the areas in which the operation of the levy has received the most stakeholder interest, and is now inviting further comment from employers who will have a liability to pay the apprenticeship levy, and anyone who runs payroll services for employers with a liability to pay.
The rules on connected employers which have been included in the apprenticeship levy are drawn from those used in the Employment Allowance, with some modifications. The modifications to the connected rules introduced for the apprenticeship levy set out that, though a connected group is able to receive the same amount of allowance as a single employer, that allowance can be split between the connected employers in a way that those employers think is best, as long as the split does not mean that more than £15,000 is applied.
The draft regulations make clear that employers not subject to the connected rules, with a pay bill of over £3m will have to report and pay the apprenticeship levy. Employers with a pay bill of less than £3m for the previous tax year or who believe their pay bill will be less than £3m in the current year (unless they find otherwise), subject to the rules on connection, will not have to engage with the apprenticeship levy.
The increase in the reporting threshold from £2.8m to £3m for the preceding years pay bill, is a change made following feedback from the technical consultation on the initial draft regulations which was held in September 2016. In addition there is a change to 147D, which responds to feedback, to make the pay bill reporting threshold clearer where there is a group of companies/charities.
New regulation 147D(2)(b)(ii) has the effect of saying where in a group one of the members has a levy allowance allocated to them for example £7,500, they will incur a levy liability once their pay bill exceeds £1.5m (£7,500 levy allowance/0.005 = £1.5m pay bill).
The draft regulations specify how the levy will be reported, through the PAYE process, along with income tax and National Insurance contributions (NICs). The regulations confirm that the annual levy allowance will operate on a monthly cumulative basis, so the levy allowance will increase evenly throughout the year.
The draft regulations also provide that where an employer has multiple PAYE schemes and does not use the full £15,000 allowance, they will be able to offset the unused amount against another one of their schemes once the tax year has ended.
HMRC has already set out that employers will use the existing PAYE system to report their levy liability, and so it is proposed that these draft regulations will be inserted into the current Income Tax (Pay As You Earn) Regulations 2003.
The consultation closes on 3 February 2017.