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Farrer & Co | HMRC consulting on draft regulations for the calculation, payment and recovery of the Apprenticeship Levy

As you may know, the Apprenticeship Levy is a new levy, to be introduced next April, that will be paid by employers to fund apprenticeships. The rate will be 0.5% of an employer's payroll, but each employer will receive an allowance of £15,000 to offset against their Levy payment. In effect this means that the Levy will only be paid by employers whose annual payroll is over £3 million.

Primary legislation for the Levy is set out in the Finance Act 2016 and the Government is now consulting on some of the details. The draft regulations only cover a part of the regime; more regulations will be published later this year dealing with other matters.

According to the paper, the draft regulations – called the Income Tax (Pay As You Earn) (Amendment) Regulations 2016 – have the following aims:

  1. to ensure that only employers who expect to have to pay the Levy are caught by the requirement to report to HMRC. Specifically, employers (a) whose pay bill in the previous tax year was £2.8 million or less, or (b) who anticipate a pay bill of under £3 million in the current tax year, should be excluded;
  2. to situate reporting and payment of the Levy within the PAYE regime;
  3. to operate the £15,000 annual allowance on a monthly cumulative basis. (The paper sets out an example of how this would work).

The policy paper also describes the practical steps that the regulations contain:

  • employers must assess their annual pay bill for the current and previous tax years, to determine if they are liable to pay the Levy;
  • the monthly due date for payment of the Levy will be the 19th of the following month or, if payment is made electronically, the 22nd;
  • employers caught by the reporting requirement (see point 1 in the list above) must notify HMRC of the amount of Levy they owe. The draft regulations set out the information that must be submitted;
  • how to calculate the monthly Levy allowance on a cumulative basis;
  • a way for both single employers and those who are part of a group[1] to apportion their allowance between multiple PAYE schemes. Apportionment must be declared to HMRC at the beginning of the tax year;
  • provision for the recovery by employers of overpaid Levy.

The consultation asks whether the draft regulations achieve their aim and whether they produce any unintended consequences.

The consultation closes on 14 November 2016. The policy paper and draft regulations can be found here. You can find out more about the Levy in general by reading the Government's guidance, "Apprenticeship Levy: how it will work".

If you require further information on anything covered in this briefing please contact Rachel Holmes (rachel.holmes@farrer.co.uk; 020 3375 7561) or your usual contact at the firm on 020 3375 7000. Further information can also be found on our Charity page.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2016

[1] Such as a "charities unit", defined in s.102 of the Finance Act 2016. Two or more charities will constitute a "charities unit" for a tax year if they are connected with one another at the beginning of the tax year and each of them is entitled to a Levy allowance for the tax year. The legislation fleshes out the meaning of the term "connected".

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