With a minimum paybill of £3 million before any liability is incurred, many small employers will think that the apprenticeship levy does not affect them.
However, there are some circumstances where this assumption would not be true.
Below are some of the circumstances where the apprenticeship levy may apply and the actions that are to be taken as a consequence of those circumstances.
Community or voluntary controlled schools
The local authority is the employer for these schools and as such the paybill of the school is included in total paybill of the local authority.
If the school’s paybill is run by a body other than the local authority, then procedures must be put in place to alert the local authority to the total of the school’s monthly paybill so that the correct levy amount can be reported on the Full Payment Submission (FPS).
The Department of Education requires that the school budget for the levy in their financial forecasts.
Voluntary aided schools, foundation schools and academies
For these schools the employer is the governing body and as such each school will have a separate levy allowance. If the school’s paybill is less than £3 million they will not have to pay the apprenticeship levy and no provision needs be made in their financial forecasts.
A multi-academy trust however, like a local authority, is considered the sole employer with just one levy allowance and therefore quite likely to be liable for the levy.
A non-maintained school that has its payroll run by a local authority is part of a pooled payroll.
A pooled payroll is where more than one employer uses the same PAYE reference number and reports the total of the employers pay information as one figure. Though there is more than one employer there will be only one levy allowance.
Where the total of the employers paybill is less than the levy allowance, then no liability arises and no action will need be made.
Where the total of the employers paybill is greater than the levy allowance, a liability will arise which could be incorrect. To ensure an accurate levy liability those employers whose paybill is greater than £3 million should leave the PAYE scheme and apply for a unique PAYE reference.
If the companies in a pooled payroll are connected companies or charities then they will share a levy allowance, and therefore do not need to do anything.
Any employer that needs to set up a new PAYE scheme has only to the end of February to do so. To start the process, go to the government site and follow the steps outlined.
What to do if an employer needs to set up a new PAYE reference mid-year is not yet known.
Calculating the levy
The costs to include in the paybill are all wages, bonuses and commissions of employees over the age of 16 years, that are subject to UK legislation. Do not include benefits in kinds and pensions payments not subject to NICs.
The levy is calculated for each tax period cumulatively. This avoids fluctuating paybills causing false levy payments for employers with paybills below £3 million. The calculation for month one is as follows:
- Total paybill for the month to two decimal places multiplied by 0.5% (to the nearest pound, rounded down)
- Calculate 1/12th of employer’s annual levy allowance (to two decimal places, rounded down)
- Deduct 2) from 1) and round down to a whole pound
Perform this for each month on a cumulative basis. This will allow for monthly fluctuations and ensure that any unused amount of allowance is carried forward. The calculation for months two to twelve is below.
- Paybill year to date to two decimal places multiplied by 0.5% (to the nearest pound, rounded down)
- Levy allowance to date (annual levy allowance ÷ 12 x number of months to date)
- Levy due to date (0.5% of pay bill year to date – levy allowance year to date), round down to whole pound
- Levy due this period (levy due year to date – levy paid to date)
Reporting the levy
The levy will be reported on the Employment Payment Summary (EPS) which will be updated with new fields for 2017-18. If the software used does not include this option, then HMRC’s Basic Payroll Tools (BPT) can be used.
Paying the levy
This will be paid through the normal processes and timescales for payroll liabilities.
There are circumstances where the apprenticeship levy could be a cost to an employer whose paybill is less than £3 million. It would be prudent for enquiries to be made, as employers may be unaware that they are part of a pooled payroll and fall foul of the rules and deadlines pertaining to the levy.
Schools would do well to make enquiries as to the structure of their payroll provider as action may be warranted to either report paybill costs to a local authority or set up a new PAYE scheme as necessary.
Finally, HMRC also requires that employers whose paybill in the last tax year was £2.8 million or more report their details in the same way as employers with paybills of £3 million or more.
Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.