If you are an employer operating in the UK, and have (or expect to have) an annual pay bill in excess of £2.8 million, then you need to be thinking seriously about the apprenticeship levy and its implications for your business. It is now clear that the levy will be introduced from 6 April 2017 and, if it applies to you, you should be taking preparatory action now.
The following article deals with the position in relation to levy funds allocated to England. Whilst employers will be required to pay the levy based upon their UK wide pay bill, the levy funds will then be allocated as between each of England, Scotland, Wales and Northern Ireland on a devolved basis, with each nation implementing its own rules in relation to access and use of the levy funds so allocated.
Will I be liable for the levy?
You will fall within the levy payment and/or reporting requirements if you are an employer operating in the UK and your total pay bill in the previous tax year is in excess of £2.8 million or you anticipate a pay bill of £3 million in the current tax year.
How much will I have to pay?
You will need to pay the levy at a rate of 0.5% of your annual pay bill – being the amount of earnings on which secondary Class 1 NICs are payable (including earnings below the secondary threshold).
You will have an annual levy allowance of £15,000 to offset against the levy payment, subject to apportionment in a group/multiple PAYE scheme context – so in practice, in a single company context, you will only need to actually pay the levy if you have an annual pay bill of £3 million or more in any tax year.
How is the levy calculated and paid?
You will need to calculate, report and pay the levy each month as part of the PAYE process – with the first submission/payment being on the 19th (or 22nd if you report electronically) of May 2017.
The annual levy allowance operates on a monthly, cumulative basis – so if you are a single company employer with an annual allowance of £15,000 you will have an allowance of £1,250 per month.
Unused allowance is carried forward to the next month – so if you have a (pre-allowance) levy payment of £1,000 in month 1, you will have £1,500 to set off against any levy liability in month 2.
If you have previously paid the levy in a tax year, and fail to utilise the full monthly allowance in a subsequent month, credit may be available to offset against other PAYE liabilities – so if you have a (pre-allowance) levy payment in month 1 of £2,000 and pay £750 of levy after operation of the monthly allowance, and you then have a much lower (pre-allowance) levy payment in month 2 of £500, you will be entitled to a credit of £750 to set off against other PAYE liabilities in that month.
You can offset any unused allowance at the end of the tax year against another PAYE scheme (if applicable).
What if I am part of a group of companies?
Only one £15,000 allowance is available per group of connected companies – you will need to allocate a proportion of the £15,000 to employers within your group at the beginning of the tax year.
How do I access levy funds allocated to England?
You must register to create a digital apprenticeship service (DAS) account from January 2017. You then verify your PAYE scheme(s) and link them to the DAS account. Group companies can choose to link all PAYE schemes to one DAS account.
Funds allocated to England will enter into your DAS account shortly after the 22 May PAYE submission date.
How are English levy funds allocated?
Funds are allocated to England based upon the proportion of your employees with a home address in England – HMRC will determine in early 2017 what proportion of your pay bill is paid to employees living in England.
Will funds be topped up and when will they expire?
The government will contribute a further 10% top up to the funds in your DAS account on a monthly basis.
The funds in your DAS account (including the top up) will expire after 24 months on an automatic first in/first out basis. You will be notified when funds are about to expire.
How can I spend the funds in my DAS account?
You can spend the funds on apprenticeships coming into effect after 1 May 2017.
You can only use the funds to pay for apprenticeship training and end point assessment in relation to your employees whose main workplace is in England (whether or not they live in England or other parts of the UK). From 2018, you will be able to transfer funds to other employers in your supply chain or sector, or to apprenticeship training agencies.
You will need to choose an approved training provider/assessment organisation and any payment due in excess of the funding band maximum for the relevant apprenticeship standard must be met in full by you directly (not from the DAS account).
If there are insufficient funds in your DAS account, the government will contribute 90% towards the extra costs (up to the funding band maximum).
You can co-ordinate with other employers to develop a relevant approved apprenticeship standard or even become an employer provider delivering apprenticeship training yourself for your and others’ employees, but the rules are complex.
Special rules apply in relation to funding for younger apprentices and disadvantaged people.
What should I be doing now?
- Determine whether you will be liable to report and/or pay the levy (using the indicative online tool at https://estimate-my-apprenticeship-funding.sfa.bis.gov.uk/). If so, register for a DAS account
- Update employees home addresses through RTI
- Include cost of levy in relevant budgets
- Start thinking about possible ways to utilise levy funds
Further information is available from your usual Fox Williams contact or from this free Government guidance: https://www.gov.uk/government/publications/apprenticeship-levy-how-it-will-work/apprenticeship-levy-how-it-will-work