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The HMRC have now published draft legislation, to be included in the Finance Bill 2016, to introduce the apprenticeship levy.
All employers whose pay bill is at least £3 million per year will need to pay the levy, which will be 0.5% of their pay bill.
We previously reported on the government's response to consultation on the apprenticeship levy. The levy will come into effect in April 2017. It will be used to fund new apprenticeship schemes, and the government anticipates that it will raise around £3 billion per year for this purpose.
The levy will be deducted in the same way as income tax and National Insurance contributions and cover the following points.
Who will pay it and how will it be calculated?
The levy will be payable by employers at the rate of 0.5% of their total gross oay bill (excluding benefits in kind). An annual allowance of £15,000 will be paid to each employer in order to offset against the levy payment. As a result of the annual allowance, the levy will only be payable by those employers with a pay bill in excess of £3 million.
The levy will be payable by employers who are liable to pay National Insurance Contributions (NICs) on behalf of their employees. A person is liable for NICs even if the applicable rate is 0% because the worker is under 21 or an apprentice under 25.
For the majority of employers, the levy will not therefore be an issue - the allowance of £15,000 will cover their obligation to pay the levy. The position will be more complex, however, for employers within a group of companies.
If employers operate multiple payrolls because two or more companies are connected (directly or indirectly), only one of them will be entitled to the £15,000 allowance for that year. The companies can decide which company can use the allowance. This will be the same for two or more connected charities.
By way of example, if company A (with a payroll of £2 million) and company B (also with a payroll of £2 million) are connected companies, they will only receive a £15,000 allowance between them. Their liability for the levy will be £10,000 each, which means that the total levy payable will be £5,000 (£20,000 minus £15,000).
Strict provisions have been included in the legislation to combat arrangements made by a company to avoid the levy.
If a company arranges to move an amount included in a pay bill from one tax year to another (including any tax year from 6 April 2016 onwards) that attempted move will be ignored for the purposes of the levy. The company may also not be entitled to receive the subsequent tax year's £15,000 allowance.
Companies are prohibited from recovering the levy from any employee, such as by a deduction from wages.
Various other rules regarding tax avoidance will apply to the levy including HMRC's information and inspection powers. The HMRC will also have authority to make regulations addressing assessment, payment, collection and recovery of the levy.
Employers have not been overwhelmingly positive about the levy, viewing it as another tax. The government's position is that the apprenticeship fund will be for all employers to use and will encourage apprenticeship schemes across all sectors, and in doing so increase the quality of apprentices and employment of young people across the UK.
Whilst the levy will not be applied until 6 April 2017, all employers should consider its implications now, particularly those employers whose pay bill is in excess of £3 million per tax year. Employers with connected companies will need to consider how the allowance will be allocated in order that it can be applied in the most cost-effective way in light of the levy.