This levy is imposed at 0.5% on the total “pay bill” of the employer for 2017/18 and subsequent years. The starting point is to accurately calculate the “pay bill”, which is not necessarily the total amount of wages and salaries paid by the employer.
The pay bill is the total pay of all employees on the payroll who have earnings liable to employer’s NI, even if the rate of NI is zero. Employees who are completely outside the NIC net are not included in the pay bill calculation. For example, employees aged under 16, or those who work overseas, are not subject to employer’s class 1 NIC. Benefits in kind subject to class 1A NIC are not included in the pay bill, so employers who payroll benefits in kind need to clearly identify the value of pay as opposed to the value of benefits.
Each employer, or group of connected employers, is entitled to an annual levy allowance of £15,000 to set against their liability for the apprenticeship levy. This means the employer should only have to pay the levy to the extent that their pay bill exceeds £3m for the tax year. An employer who runs several PAYE schemes is only entitled to one levy allowance.
The rules that determine which employers are connected, are the same as apply for the employment allowance. Connected employers can decide how to share the £15,000 allowance between them, but this division must be reported on the EPS for April 2017. Where the employer is entitled to only a portion of the levy allowance, their threshold for paying the apprenticeship levy will be much lower than £3m.
Written by the Tax Advice Network