The basics

The Apprenticeship Levy was announced in the 2016 Budget and aims to fund three million places for apprentices. The key elements of the levy are:

it will be payable by employers in the UK at 0.5% of gross wage costs on a monthly basis in addition to any other industry levy already in place;

all employers will receive an annual allowance of £15,000 to offset against the payment of the levy, which effectively means the levy will only be payable by employers with total wages in excess of £3 million per year;

it will be payable through the Pay As You Earn (PAYE) system;

groups of companies will only receive one allowance to offset against their levy. The connected persons rule (similar to the employment allowance) will apply to employers or groups of employers who operate multiple payrolls who will only be able to claim one allowance in total. If one employer does not fully utilise the allowance then the balance can be used against other PAYE schemes after the end of the tax year;

the levy will apply equally to employers across all sectors with no exception for charities, government bodies etc.;

the levy will be calculated by reference to the total earnings subject to an employer’s Class 1 National Insurance Contributions;

as soon as the levy has been paid to HMRC, employers will be able to access this amount for funding apprenticeships through a new digital apprenticeship service account; and

the apprenticeship service account will be topped up by 10% from the Government but must be used within 18 months otherwise the money will not be available for apprenticeship training costs.

How does this affect employers within shipping & offshore maritime?

For the majority of UK employers (over 90%) no levy will be payable as their total wages bill will be less than £3m a year. The levy is determined based on the UK payroll which in many cases will not include seafarers and therefore the shipping & offshore maritime sector will be less affected than other sectors. However, if you are a UK employer and your wage bill in the UK is in excess of £3m then you will have to pay a levy.

We understand that there will be no interaction between the Apprenticeship Levy and the UK tonnage tax training commitment, so where relevant, both sets of rules will apply.

As the charge is based on earnings subject to employers’ Class 1 NIC (the National Insurance assessed on wages through the payroll), there will be no levy on employees seconded from overseas who have an A1 or other certificate of coverage.

There will still be a charge on pensioners, employees paying reduced rate contributions and those with deferment certificates. Also, where part-time staff are employed who earn less than the lower earnings limit and Class 1 NIC would not be payable, these earnings will be specifically included for the purposes of calculating the amount of levy due.

What will affect many more employers though will be the interaction with other pay structures, such as payrolling benefits, salary sacrifice and PAYE Settlement Agreements. While there are plans to restrict the impact of salary sacrifice from April 2017 in certain instances, the main use of salary sacrifice for pensions, child care and cycling schemes will be unaffected. The use of such arrangements has always been tax-efficient, but by reducing the pay on which Class 1 NIC is payable, the employer will reduce the pay for levy purposes as well.

Payrolling benefits will be unaffected by the levy as, even though PAYE tax is assessed on benefits through the payroll, the employer is still required to assess Class 1A NIC in the normal manner, so the pay subject to Class 1 NIC will not be affected.

PAYE Settlement Agreements (PSA) allow an employer to settle the tax and NIC due on certain benefits to staff directly. These typically include incentive awards and staff entertaining which can, in some circumstances, be otherwise subject to Class 1 NIC (e.g. reimbursed meal costs). Inclusion of such items in a PSA will therefore ring-fence these expenses from the levy calculation.

Preparing yourself for April 2017

If your business will be affected by the Apprenticeship Levy, you need to do the following to prepare for April:

in groups of companies, determine in advance which employer will claim the £15,000 allowance or how this is going to be split between companies within the group;

use your payroll system to calculate and pay over the levy from April;

ensure any salary sacrifice arrangements or similar planning is implemented prior to April to reduce the levy if possible;

consider if some benefits, which are currently liable to Class 1 NIC, can be provided in such a way that only a Class 1A NIC liability arises in the future.

Source: Moore Stephens