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The apprenticeship levy, which the Government intends to impose from next April, will require larger employers to pay a levy to the government to fund new apprenticeships. The scheme is intended to support the Government's commitment to increase the quantity and quality of apprenticeships, and will be charged at a rate of 0.5% of an employer's total pay bill where this exceeds £3 million a year. For these purposes, an employer's pay bill is the amount of their payroll on which secondary Class 1 National Insurance contributions are payable (including salary amounts falling below the secondary threshold). As such, the levy will only be paid by the largest 2% of employers.

Draft regulations have now been published setting out how the levy will operate. The regulations will amend the Income Tax (PAYE) Regulations 2003, and provide that those employers for whom the levy is payable will need to report to HMRC the amount of the levy for which they are liable on a monthly basis. The reporting requirement is also extended to those employers whose pay bill (again, based on the amount of their payroll on which secondary Class 1 National Insurance contributions are payable) exceeded £2.8 million in the last tax year or who consider that their pay bill will be over £3 million during the current tax year, on the basis that even if they are not currently required to pay the levy they may well be required to do so in the near future.

The draft regulations also set out details of how the annual £15,000 allowance to offset the levy payment will operate on a monthly basis, providing that any unused allowance can be carried over to subsequent months, and deal with apportionment of the allowance between difference PAYE references.

The apprenticeship levy is controversial, as some larger employers in sectors where apprenticeships are not common feel that it is unfair that they should be required to pay a levy from which they will not benefit. However, imposition of the levy is intended, amongst other things, to increase the incentive for such businesses to offer more apprenticeships, and in so doing advance the government's social mobility agenda.

The draft regulations are subject to consultation, and responses should be provided by 14 November 2016. The regulations and the consultation can be accessed here.

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