HMRC published the first package of Draft Regulations on the Apprenticeship Levy, which were drawn up under the powers in the Finance Act 2016, specifically relating to the calculation, payment and reporting of the Levy, including the operation of the £15,000 annual Levy allowance.

HMRC also launched a technical consultation on the Regulations – which has now closed – encouraging all interested parties to comment on the following questions:

1. Do the regulations as drafted achieve their objectives as set out above?
2. Do these draft regulations produce any unintended consequences?

Affected employers

Employers with a pay bill of £2.8 million or less for the previous tax year or who believe their pay bill will be less than £3 million in the current year (unless they find otherwise) will not have to engage with the Apprenticeship Levy. The £2.8 million pay bill test is to ensure that it is only employers who may find their pay bill increasing to over £3 million during the year who will have to engage with reporting the levy, as it is unlikely that an employer with a pay bill of less than that will find themselves over the £3 million threshold in the following tax year and therefore begin to accrue levy liability.

Operating the £15,000 allowance

Where an employer has an annual levy allowance of £15,000 and applies this to a single PAYE scheme, this would mean an allowance of £1,250 a month. Any unused allowance will be carried over from one month to the next. For example, if the levy liability in month 1 is £1,000 the employer won’t 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). 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 doesn’t 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.

Draft Regulations

The purpose of the draft regulations is to set out how employers or payroll operators will calculate, report, and pay their levy liability. It is proposed that these draft regulations will be inserted into the current Income Tax (Pay As You Earn) Regulations 2003. In particular, they:

• set out that an employer is required to assess their annual pay bill amount for the previous and current tax year to decide if they are liable for the levy
• make provision for the due date of the Apprenticeship Levy to be by the 19th (or 22nd if you report electronically) of the following month
• place a requirement on employers to notify HMRC of the levy which is to be paid and make provision for the information which should be included in this return – the employer will use the Employers Payment Summary (EPS) to report their Apprenticeship Levy liability due to date and also the amount of annual levy allowance the employer may allocate to multiple PAYE references
• set out how to calculate the monthly levy allowance on a cumulative basis, in order to calculate levy liability – they also set out how to calculate levy liability both in the first month of the tax year, and in subsequent months
• allow both single employers and employers who are part of a group (company unit or Charity unit, which has apportioned the £15,000 annual levy allowance across the unit) to apportion the annual levy allowance between multiple PAYE schemes
• make provision for recovery of overpaid levy by the employer