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Employment Matters

The Apprenticeship Levy
Employment Matters

Employment Matters

Date
16 March 2017

Will Winch Managing Associate

One of the key aims of the current government is to encourage young people to enter the job market as skilled workers. Apprenticeships are seen as a cornerstone of this strategy and the government is keen to encourage businesses to take on apprentices. The apprenticeship levy is a tax designed to fund the government's plan.


The Apprenticeship Levy

What is the apprenticeship levy?

One of the key aims of the current government is to encourage young people to enter the job market as skilled workers. The announcement of T Levels in the recent budget is part of this drive.  Apprenticeships are seen as a cornerstone of this strategy. The government is keen to encourage businesses to take on apprentices. The apprenticeship levy is a tax designed to fund the government's plan. It is payable by employers in the UK with an annual pay bill that exceeds £3 million. The money raised by the levy will be earmarked specifically for funding the training of apprentices. 

Is it currently in force?

The levy is not yet in force. The government has published draft regulations, and has consulted on the draft.

How much will employers have to pay?

Employers will need to pay 0.5% of their total pay bill for a tax year.  There is an annual allowance of £15,000, which means that the first £3million of any pay bill will not attract the levy. According to the government, this means that the levy will apply to less than 2% of employers.

How will the levy be collected ?

Employers must submit an apprenticeship levy return - which includes details of the levy amount (net of levy allowance) - within 14 days of the end of the tax month. They must pay the levy at the same time as it makes its PAYE payments. The levy is paid monthly, so the total levy amount is split into 12.

If the employer overpays the levy can they get their money back?

If the levy has been overpaid, the employer must offset the overpayment against its other PAYE liabilities before it makes a claim to HMRC for reimbursement.

How will  the levy apply to group companies?

If two or more companies are connected at the beginning of a tax year (and "connection", for these purposes, is essentially the same test that applies to the Employment Allowance - a control test with some exceptions), they may only use one £15,000 allowance between them for that year. While they can decide between themselves how to apportion the allowance, they cannot allocate a negative allowance to one company (in other words, they can give one company no allowance, but cannot drop below zero). They must notify HMRC of the way in which they are apportioning the allowance in the first month's return, and once the allocation has been notified to HMRC, it cannot normally be varied (unless the variation is permitted under regulations which the government may put in place). 

If group companies together claim more than the £15,000 allowance, what action will be taken?

If the connected companies accidentally together claim more than their allowance, HMRC will calculate the appropriate allowance contributions by reducing each company's allocation pro rata, having regard to the allowance they attempted to claim. It will write to each of the companies specifying the revised allocation and instructing them to take remedial action. If the companies then fail to take the appropriate remedial action, the allowance will be evenly split between each of the affected connected companies. 

What if we are not sure that our pay bill will exceed £3million at the beginning of the year?

Each company must estimate their likely pay bill, and proceed accordingly. 

What are the rules relating to record retention? 

An employer must retain all documents relating to the calculation of the apprenticeship levy for a minimum of three years.

What will happen if the levy is not paid?

If HMRC becomes aware that the levy has been underpaid, it may issue an assessment to collect an amount, based on an estimate of the amount owed for one or more tax periods in a tax year. This estimate may relate to all of the levy, or the amount payable in respect of certain employees or groups of employees. If HMRC serves an assessment on an employer, the assessment must be paid within 30 days of receipt (unless an appeal is lodged during that period). The appeals procedure is similar to the procedure relating to income tax demands. Penalties may be payable in relation to underpayments of the levy.

When does HMRC have to issue this assessment?

If nobody was at fault, HMRC must serve the assessment within four years of the end of the tax year to which it relates. If the employer was careless in its calculations, the period is six years.  If the employer acted deliberately to avoid the levy (including in circumstances where it is attributable to arrangements that should have been notified under the Disclosure of Tax Avoidance Schemes, HMRC will have 20 years in which to serve the assessment. 

Can the employer minimise the cost by passing on the charge to employees?

No, an employer cannot recover the levy charge from payments made to workers.

Would a company be allowed to restructure the timing of payments so as to avoid an annual liability in excess of £3 million or to reduce the liability in some other way?

No, anti-avoidance provisions exist to defeat attempts to obtain an advantage in relation to the apprenticeship levy by bringing forward or deferring the date of a payroll liability so that it falls in a different tax year. In these circumstances, the payroll liability will be deemed to be as arising in the year in which it should have arisen, and the apprenticeship levy liability will be recalculated accordingly. If HMRC cannot counteract the advantage by amending the tax year in which an arrangement falls, the person will be denied an apprenticeship levy allowance for the tax year.

Is it possible to elect to spend the money to pay for our own apprentices instead of paying the levy?

No.  Companies have to pay the levy, but the money they have paid will go into their own virtual levy account. They can use the money in this account to meet the training costs of its apprentices. If the money paid in is not used within 24 months, the company will lose its entitlement to it. Any money used by the company will be deemed to be the 'oldest' money in the account.

How can we access the money?

You can register for an account, providing you have your Government Gateway number and your Companies House number. The funds can then be used to buy digital vouchers to give to training providers. The government will contribute an additional 10% to the value of the vouchers, to make the training cheaper for the employer. 

Are we allowed to use the money in our levy account to set up an apprenticeship scheme, and to pay the apprentices' wages?

No, the levy funds can only be used to pay for training.

Is it possible to re-badge our interns as apprentices?

Probably not. An apprenticeship needs to meet various tests.  First, the apprentice must be employed in a real job. They need to be working towards achieving a specific apprenticeship framework, or one of the new apprenticeship standards. The apprenticeship must be for a minimum of 12 months, and the apprentice needs to spend at least 20% of their time (i.e. one day a week) on off-the-job training.

Are any of the standards or frameworks useful for us as a business?

Quite probably. There are a lot of them, and the categories are growing.  Lists are found here:

https://www.gov.uk/government/publications/apprenticeship-frameworks-live-list

https://www.gov.uk/government/publications/apprenticeship-standards-list-of-occupations-available