In the latest Agents Bulletin 125, published on 21 November 2024, HMRC announced new Guidelines for Compliance when determining whether the ‘connected’ entity rules apply to the Apprenticeship Levy or when claiming the Employment Allowance.
The measures are part of Governments’ earlier commitment announced in November 2021, to provide Guidelines for Compliance that offer HMRC’s view on complex, widely misunderstood, or novel risks that can occur across tax regimes, including guidelines for employers.
The new guidelines published by HMRC — Help with the Apprenticeship Levy and Employment Allowance — connected entities — GfC10, provides clarification and examples to help employers report their Apprenticeship Levy liability and Employment Allowance claims correctly first time.
The rules apply to all business sectors and highlights the definition of the collective term ‘entity’ that includes companies, charities, and public bodies (and their related organisations).
HMRC announced:
These guidelines clarify the connected entities rules to help employers correctly report the Apprenticeship Levy and claim Employment Allowance by:
- explaining how the connected entities rules impact the Apprenticeship Levy and Employment Allowance
- highlighting the common errors employers make
- giving practical advice on how to identify connected entities
- providing help on the unique scenarios in the public body population
- setting out how employers can correct any errors made
The basic rule for deciding if 2 companies are ‘connected’ with each other is that either:
- one of them has control of the other
- both are under the control of the same person or persons
Further details on these conditions can be found in the guidance on connected companies for the Employment Allowance.
Apprenticeship Levy
Unlike the Employment Allowance, all employers including public authorities (for example, Central Government Departments, Local Government) are liable for the Apprenticeship Levy.
Where employers are subject to the apprenticeship levy, they are entitled to an annual allowance of £15,000 to off-set against their liability. The employer decides at the start of tax year if and how they want to share the allowance and must notify HMRC at the same time.
Whilst all connected groups will have to pay the levy regardless as to whether the individual company meets the £3 million NIC threshold, not all will be allowed the allowance.
Employment Allowance
In contrast to the rules on the payment of the Apprenticeship Levy Allowance, only one employer in a connected group can claim the Employment Allowance, which will increase from £5,000 to £10,500 in 2025/26, together with the removal of the £100,000 threshold.
Although the entitlement to this will be retained for smaller employers more detail on the definition of this is yet to be published.
Employers operating more than one PAYE scheme may decide to transfer their existing claim for the allowance from one PAYE scheme to another. Whilst this cannot be done mid-way through a tax year, it can be set up in advance of the following tax year commencing.
If employers are unable to use up the full amount of the Employment Allowance against their chosen PAYE scheme before the tax year ends, then provided they have no outstanding PAYE liabilities owing on their other PAYE schemes, once that tax year has ended, they may apply to HMRC for a refund of the unused balance of the Employment Allowance.
The new guidance will not replace existing Manuals for the Apprenticeship levy and National Insurance but may be used in conjunction with this legislation.
