I recently presented at a seminar at Southampton Solent University which focussed on the introduction of the Apprenticeship Levy and its surrounding employment tax issues. The employers likely to be affected and the cost to them were key areas where businesses were seeking clarification on the possible impact.
The Levy was announced in the Conservative Budget 2015 and will be introduced with effect from April 2017 – so the time is right for employers to start planning ahead for the new system. It will affect any employer with an annual pay bill of more than £3 million. For this purpose a group of connected employers will be treated as a single employer.
The Apprenticeship Levy is currently set at 0.5% of the annual pay bill with the annual pay bill broadly defined as those earnings paid through the payroll which are subject to Class 1 employer NICs. There are some exclusions, for example those employees who are exempted from UK national insurance may be excluded for the purpose of calculating whether the pay bill exceeds £3m. This would exclude employees from overseas working in the UK who hold a valid social security exemption such that they remain in the social security system of their home country.
Once it has been established that the Apprenticeship Levy must be paid the employer may utilise a £15,000 Levy Allowance. Thus, assuming a pay bill of £5 million, an Apprenticeship Levy of £25,000 will result (£5m x 0.5%). From this the £15,000 Levy allowance is deducted leaving a net payment of £10,000.
For those employers who do not have to pay the Levy from the start of the tax year it may be that an increase in staffing numbers means they become liable to the Levy partway through the year. Where this happens the employer must start paying it from that point onwards and will be entitled to the full £15,000 Levy allowance for that year. By means of example, if a business needs to first calculate in month 9 of 12 then 9/12ths of the £15,000 is allowed in month 9 with the balance being allowed in equal amounts in the three remaining months of the tax year. This is perhaps something to bear in mind if your business is planning for a growing workforce or considering a merger, with an increase in the size of the pay bill.
The intention is that the Levy will be collected monthly through your payroll software. Data from the payroll submissions will then be transferred to the Skills Funding Agency (SFA) for the Employer Digital Apprentice Service Account.
How can Wilkins Kennedy help?
The fine detail around the Levy is still fluid and it is fair to say at this stage the mechanisms are a little “clunky”. We are sure that as the commencement date approaches there will be further guidance on how to check whether you are required to pay the levy, and how to calculate, report, and pay it. In addition there are some particular intricacies for employment “groups” where it is possible to share the Levy Allowance and in some instances to transfer it where it is not fully utilised. The employment tax team here at Wilkins Kennedy can help you keep up to date with any changes, as well as help you to prepare for the Levy when it comes in to play next April.