What Does the Apprenticeship Levy Mean for U.K. Employers?



Unclear about the apprenticeship levy or how it would be applied in the U.K.? You are not alone.

Nearly 40 percent of U.K. businesses are unclear or ignorant of the new payroll tax scheduled to take effect April 6, 2017, the British Chamber of Commerce said in publishing results of a survey Sept. 20.

So then what is the apprenticeship levy?

The levy is a new tax that requires U.K. employers with payrolls greater than 3 million pounds ($3.6 million) to pay a 0.5 percent payroll tax beginning April 6, 2017, to fund a new government apprenticeship program.

The levy is to apply to all employers on the total amount of employee earnings subject to Class 1 secondary National Insurance contributions, including amounts that are below the threshold from which employers are required to make National Insurance contributions. Only employer-provided benefits in kind will be excluded from the calculations.

Employers will be given an annual allowance of 15,000 pounds ($18,174) to offset the new payroll tax to be collected through the Pay-as-You-Earn system on a monthly basis.

Why all the confusion?

With less than six months left until the levy takes effect, the government has really “shot themselves in the foot a little bit” with the implementation of the new payroll tax, said Yvette Lamidey, editor of the magazine Global Payroll Association U.K. There needs to be simpler guidance on the levy because it's not really understood, she told Bloomberg BNA on Sept. 29.

Employers may not have realized important details about the new payroll tax, Lamidey said, such as the tax applying to all employers, including nonprofits and charities. Additionally, employers may not realize that different legal entities linked under the same umbrella would receive only one annual allowance of 15,000 pounds.

The U.K. government said that predominantly the largest companies, representing 2 percent of all employers, would be liable for the tax. However, Lamidey and the British Business Bureau warned that the new tax likely would apply to smaller employers, which had not been anticipated.

Nearly 33 percent of medium-sized businesses, with 50 to 249 employees, polled by the British Business Bureau said they would be liable for the payroll tax.

Under the current regulations, an employer paying the median annual earnings in the U.K. of 27,600 pounds ($33,652) would begin paying the apprenticeship levy with their 108th employee.

The largest companies would likely understand how the new tax would function but medium-size businesses would less likely know their new obligations, Lamidey said.

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