April 2017 saw the introduction of a new tax in the form of the Apprenticeship Levy. This is a tax due on any business with a payroll figure of over £3m. In a nutshell that is more than likely to catch all umbrella companies and recruiters who operate their own PAYE payroll. So why am I paying the Apprenticeship Levy?
The Apprenticeship Levy is to be paid on all earnings subject to Class 1 secondary (Employer) National Insurance contributions, and equates to 0.5% of the Umbrella Company or Public Sector organisation payroll figure. The responsibility for the tax lies with the business closest to the PSC in the chain or the umbrella company, as the one deducting the employment taxes.
Putting this into perspective it means if a contractor earns £500.00 per day, the apprenticeship levy bill equates to around £50.00 per month. For Umbrella companies; this means that the Apprenticeship Levy has to be made from the contract rate.
Even after a long and painful dialogue with HMRC, they have stated there will be no exemption. This leaves umbrella companies and recruiters processes to take the Apprenticeship Levy into account.
Paying the Apprenticeship Levy
From April 2017, the Apprenticeship Levy and Employer’s NI Contribution deductions should be taken from the contract rate. These contributions will be paid directly to HMRC.
When does the umbrella need to pay it?
As an employer, you’ll have to pay Apprenticeship Levy each month from 6 April 2017 if you; Have an annual pay bill of more than £3 million are connected to other companies or charities for Employment Allowance which in total have an annual pay bill of more than £3 million.
Your annual pay bill is all payments to employees that are subject to employer Class 1 secondary National Insurance contributions such as wages, bonuses and commissions.
You must include payments to;
All employees earning below the Lower Earnings Limit and the Secondary Threshold employees;
under the age of 21;
apprentices under the age of 25.
Your pay bill does not include earnings:
Of employees under the age of 16;
Of employees who are not subject to UK NI contributions legislation on which Class 1A NIC’s are payable; such as benefits in kind.