The Apprenticeship Levy was announced at Summer Budget 2015, and at Autumn Statement 2015 it was announced that it would come into effect in April 2017. The primary legislation setting out the Apprenticeship Levy is contained in Part 6 of Finance Act 2016.
The Apprenticeship Levy will be a levy on employers operating in the UK to fund new apprenticeships. The levy will be charged at a rate of 0.5% of an employer’s pay bill.
Employers will receive an annual allowance of £15,000 to offset against their levy payment and this means that employers not subject to the rules around connection will only pay the levy if their pay bill exceeds £3 million in a given year.
The rules on connected employers which have been included in the Apprenticeship Levy are drawn from those used in the Employment Allowance, with some modifications. The modifications to the connected rules introduced for the Apprenticeship Levy set out that, though a connected group is able to receive the same amount of allowance as a single employer, that allowance can be split between the connected employers the way that those employers think is best, as long as the split doesn’t mean that more than £15,000 is claimed.
It is estimated that less than 2% of employers will have to pay the Apprenticeship Levy.
In England, control of apprenticeship funding will be put in the hands of employers through the Digital Apprenticeship Service. The Department for Education has published guidance Apprenticeship Levy: how it will work.
This initial package of draft Apprenticeship Levy regulations have been drawn up under the powers that are contained in the Finance Act 2016, specifically relating to calculation, payment and reporting of the Apprenticeship Levy including the operation of the £15,000 annual levy allowance. They also make it clear (draft regulation 147D(1)) that only where an employer has a levy liability, or expects to have a levy liability during the tax year, they will need to engage with reporting the Apprenticeship Levy to HM Revenue and Customs (HMRC). These are the areas in which the operation of the levy has received the most stakeholder interest.
The draft regulations will be relevant to employers who will have a liability to pay the Apprenticeship Levy, and anyone who runs payroll services for employers with a liability to pay.
Employers not subject to the connected rules, with a pay bill of over £3 million will have to report and pay the apprenticeship levy. Employers with a pay bill of £2.8 million or less for the previous tax year or who believe their pay bill will be less than £3 million in the current year (unless they find otherwise) will not have to engage with the Apprenticeship Levy.The £2.8 million pay bill test is to ensure that it is only employers who may find their pay bill increasing to over £3 million during the year who will have to engage with reporting the levy, as it is unlikely that an employer with a pay bill of less than that will find themselves over the £3 million threshold in the following tax year and therefore begin to accrue levy liability.
The draft regulations specify how the levy will be reported, through the Pay as You Earn (PAYE) process, along with Income Tax and National Insurance contributions. The regulations confirm that the annual levy allowance will operate on a monthly cumulative basis, so the levy allowance will increase evenly throughout the year.
The intention is later in 2016 to make the full package of draft Apprenticeship Levy regulations available, which will cover other aspects such as assessment, repayment, recovery from third parties, records to be retained.
The deadline for responses is 14 November.
The consultation document can be found here
