APPRENTICESHIP LEVY - 20.04.2018

The apprenticeship levy - year two

Check the definitions

One of the issues that caught out some payroll software products was the definition of the so-called “pay bill” which is used to assess if the PAYE scheme is subject to the apprenticeship levy.

Some products were wrongly configured to look at NI’able pay. In fact, NI’able pay ignores earnings up to the threshold for NI, whereas the pay bill is defined as “all pay subject to employers’ National Insurance” , so this includes pay from pound one as this is subject to NI, it’s just that the rate is 0%.

Pay bill calculation

This of course means that the earnings of people who are not subject to UK NI are not included in the pay bill. The table below will allow you to check if your payroll software is correctly calculating the pay bill.

2018/19 values

The levy will remain payable at 0.5% by PAYE schemes which have a pay bill in excess of £3 million, assuming that they have been allocated the full £15,000 levy allowance for the tax year concerned.

Unconnected schemes

Each PAYE scheme that is unconnected to another has a full £15,000 allowance. A connected company or charity only has one amount of £15,000 that can be used by all the PAYE schemes in the connected company or charity.

Example. A business that owns five pubs each with its own PAYE scheme and which are all managed by the same board of directors could choose to allocate £3,000 to each PAYE scheme. Equally, it could choose to allocate £15,000 to one PAYE scheme and nothing to the other four. The choice of the levy allowance split is reported on the April EPS, and then remains fixed for that tax year.

Pro advice. The levy allowance can be reported in pounds and pence, whereas the levy is only payable in round pounds, and is rounded down to the nearest pound.

Calculation

Unusually, for something that is based on a definition related to NI, it is the cumulative pay bill that is assessed each month. Usually NI (apart from directors’ NI) is calculated on a non-cumulative basis.

Example. Zeph’s café had a pay bill last year of £3.1m; it is a standalone business with a levy allowance of £15,000. Their pay bill was £200,000 in April 2018 and they have a levy allowance of £1,250 (£15,000/12).

Their levy is calculated as £200,000 x 0.5% = £1,000. There is no levy to pay as it is covered by the levy allowance. In May 2018 their pay bill is only £150,000, so YTD £350,000 x 0.5% = £1,750 and there is a cumulative levy allowance of £2,500 (£15,000/12 x 2).

So, no levy is payable for May either. In June they take on lots of staff for the summer, their pay bill is £450,000, so YTD £800,000 x 0.5% = £4,000 and there is a cumulative levy allowance of £3,750 (£15,000/12 x 3). There is £250 to report and pay in June. They still have to report zero figures on the EPS for April and May as they expect their pay bill to exceed £3m in 2018/19.

Pro advice. Seasonal employers like Zeph’s may find that they pay the levy in some months and then they need to claw it back from their other PAYE liabilities if they drop below the threshold as the year progresses. Sadly, if their other liabilities are not high enough to recover all of the levy they will have to wait until after year end for a refund from HMRC.

Payment over and reconciliation

The apprenticeship levy is paid over to HMRC with the employer’s other liabilities, tax, NI and student loans, by the 22^nd of the month after the month of payment. The amount paid over should then be viewable on the employer’s business tax account from the 10th of the month after month end if the employer has sent the EPS by the 5th of the month, or within one day if the EPS is sent after the 5th. The levy is included in the charges column on the business tax account.

Using levy funds

As skills funding is a devolved matter, each country within the UK has made decisions about supporting employers with the cost of apprenticeships.

Employers who have employees based in England receive levy funds proportionate to the number of employees with English addresses within a digital account. They can then allocate to training providers to deliver apprenticeship training and assessment to the relevant staff (funds cannot be used for the apprentice’ wages or salary, travel costs or administration).

The government provides a 10% top up to the funds in the digital account. Groups of companies can pool their funds. Levy receipts in Wales and Northern Ireland are simply added into general taxation.

In Scotland, there is a £10 million workforce development fund which employers can apply to to fund apprenticeship training (see Follow up ).

Funds in digital accounts expire after 24 months, so funds that were first allocated in May 2017 will expire at the end of April 2019.

Smaller employers

Any employer which is not liable to pay the levy can still receive government support through the existing concept of co-investment.

They approach a local training provider, for example an FE college, and agree a price for training or a qualification. The college receives funding from the government and the employer is expected to contribute 10%.

Any other help?

Care. The government will provide £1,000 to an employer and £1,000 to a training provider to pay for the additional support required to take on an apprentice aged 19 to 24 who has previously been in care or who has a local education authority health care plan.

Deprived areas. To support apprenticeships in the most deprived areas there is a “disadvantage uplift” (which is a government grant and that is not part of the digital account) of £600 for the 10% most deprived areas, £300 for the next 10% and £200 for the next 7% of areas.

Learning disability. Training providers can claim an additional £150 per month from the government to support an apprentice who has a learning disability. This can be increased if additional support is required because of the nature of the disability.

Poor maths and English. Apprentices who do not have the required minimum standard in maths and English receive an additional flat rate of £471 from the government to enable them to study for this qualification.

More information about the Scottish workforce development fund