The technical consultation on draft regulations for the apprenticeship levy, published on 14 December 2016, made it quite clear that this update is 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.
Basically, the apprenticeship levy will hit recruitment agencies because of the IR35 regulation changes that, in turn, give contractors an ‘employee’ status from a taxation perspective – which means they will appear on the payroll as such and this could increase the payroll to apprenticeship levy trigger amount.
The freshly-pressed draft regulations confirm that the annual levy allowance will increase throughout the year and hence, operate on a monthly cumulative basis. The regulations also identify how the levy will be stated through the PAYE process, along with income tax and National Insurance contributions (NICs).
For instance: if an employer, who has an annual levy allowance of £15,000, applies this to a single PAYE scheme, this would mean an allowance of £1,250 a month. Any unused allowance will then be carried over from one month to the next. If the levy liability in month #1 is £1,000, the employer will not pay the levy and the allowance in month 2 will be £1,500 (the levy allowance for month 2 being £1,250 + any unused allowance from month 1 (£250) = £1,500 total levy allowance for month 2).
If there is unused allowance in a month, it will be carried as a credit into the subsequent months, as shown above. At the end of the tax year, if the levy has been overpaid, the employer can use the overpayment to offset against their other PAYE liabilities.
The draft regulations also provide that where an employer has multiple PAYE schemes and does not use the full £15,000 allowance, they will be able to offset the unused amount against another one of their schemes once the tax year has ended.
The apprenticeship levy is set to be introduced from April 2017, but the payments will begin from May 2017.