Paying the Apprenticeship Levy
HMRC has published guidance on paying the new Apprenticeship Levy. The new levy comes into effect from 6 April 2017 at a rate of 0.5% of the employer’s ‘pay bill’. To exclude smaller employers, a £15,000 annual allowance can be claimed. This will mean that only employers with a pay bill in excess of £3 million will contribute to the levy. The £3 million limit also applies to companies who are connected to other companies or charities for the Employment Allowance and which, in total, have an annual pay bill of more than £3 million.
Employers who aren’t connected to another company or charity will have an Apprenticeship Levy allowance of £15,000 each year. This means that the Apprenticeship Levy payable is reduced by £15,000 across the year. It will not be possible for any unused allowance to be carried over to the following tax year.
The pay bill will be based on total employee earnings subject to Class 1 secondary NICs including wages, bonuses and commissions. It also includes earnings below the Lower Earning Limit and the Secondary Threshold as well as employees under the age of 21 and apprentices under the age of 25.
Employers can choose how to split the allowance between PAYE schemes or with connected companies or charities. The allocation cannot be changed during the tax year. From 6 April 2017, employers will need to tell HMRC how much Apprenticeship Levy they owe each month using their Employer Payment Summary (EPS).
Records relating to payment of the Apprenticeship Levy must be held for at least three years after the tax year they relate to. The levy will be paid through the PAYE process in the same way as Income Tax or National Insurance contributions. Any overpaid Apprenticeship Levy made during the tax year will be refunded as a PAYE credit. Apprenticeship Levy payments are a deductible expense for Corporation Tax. The guidance also provides advice for schools on paying the levy. This advice depends on the status of the school.