The Draft Regulations
The government has published the first draft of the regulations implementing the apprenticeship levy. The regulations will amend the Income Tax (PAYE) Regulations 2003. The purpose of this initial package of draft regulations is to set out how employers or those who run payroll services will calculate, report and pay their levy liability. Additional draft regulations will be published shortly.
By way of recap, employers will only pay the apprenticeship levy if they have a pay bill of more than £3 million each year. As such, less than 2% of UK employers will have to pay the levy. The apprenticeship levy will be charged at a rate of 0.5% of the annual pay bill. However, employers will have a levy allowance of £15,000 to offset against their levy liability.
The draft regulations provide that employers will need to engage with reporting obligations if their pay bill exceeds £2.8 million in the previous tax year or is expected to reach £3 million in the current tax year.
Application to the Recruitment Sector
As the levy is based on PAYE payroll, many staffing businesses and umbrella companies who run PAYE payrolls for their temporary workers will, due to their disproportionately large wage bills, exceed the £3 million threshold and will have to pay the levy even though their businesses are relatively small.
The application of the levy to staffing businesses seems to be at odds with the government's proposals for IR35 reform in the public sector. Under the proposed IR35 reforms, the government is encouraging staffing businesses to payroll the temporary workers they supply into the public sector. However, under the apprenticeship levy, the government will effectively tax staffing businesses based on the number of temporary workers they payroll.
The purpose of the legislation is to encourage employers to run apprenticeship schemes to recover the amounts they pay under the levy. However, for staffing businesses and umbrella companies, the opportunity to take on apprenticeships may be limited, making the levy an additional cost.
The government is now seeking views on whether the draft regulations achieve their objectives as set out in the legislation and associated guidance, and to confirm that there are no unintended consequences. The consultation closes on 14 November 2016.