Finance Bill

Written evidence submitted by the Low Incomes Tax Reform Group (LITRG) of the Chartered Institute of Taxation (CIOT) (FB 04)

Clauses 87 - 110 – Apprenticeship Levy

1. These clauses create the mechanism for an apprenticeship levy to be charged and collected. Theoretically only large employers will be paying it, however in practice, we think that many more employers – particularly small or micro employers – may find themselves contributing, if the £15,000 ‘offset’ is not easy to understand or claim. 

2. Background

2.1. The Apprenticeship Levy is a levy on employers to fund new apprenticeships. The levy will be introduced from 6 April 2017 and will apply across the UK.

2.2. The levy will be charged at a rate of 0.5% of an employer's total pay bill. Each employer will receive an allowance of £15,000 to offset against their levy payment, which will mean the levy will only be payable on pay bills in excess of £3 million a year. The policy paper published on 4 February 2016 [1] explains that ‘the levy will be paid by less than 2% of UK employers…’.

3. LITRG response

3.1. How the Apprenticeship Levy is operated in practice is key to ensuring that only those intended to pay it do actually pay it.

3.2. Much of the detail for the operation of the levy is to be included in Regulations. We therefore have to make assumptions as to how it will operate. The closest model to follow is that of the Employment Allowance [2] and we assume that the mechanism for operation of the Apprenticeship Levy (for example, how to claim the levy allowance) will be similar. To claim the Employment Allowance, it is necessary to tick a box in the Employer Payment Summary or on the paper equivalent form [3] .

3.3. Lessons need to be learned from introduction of the Employment Allowance. There will likely be the same general lack of awareness about the Apprenticeship Levy allowance as we saw with the Employment Allowance - where initial take up rates were around 70% [4] . Therefore if employers have to claim the Apprenticeship Levy allowance, rather than having it applied automatically, they may well pay over more than they need to.

3.4. Lack of awareness may in fact be compounded further for the Apprenticeship Levy, given the Government’s message to date that it will only apply to a small percentage of employers, at the larger end of the scale. Smaller employers may therefore have already taken on board the message that ‘this does not apply to me’ and therefore not realise that they might have to take action to make sure they are not caught out by it.

3.5. We are very concerned that small employers will be disproportionality affected - putting a further strain on their often already stretched budgets. One particular example is care and support employers [5] who, in our experience, do not always see things like HMRC’s Employer Bulletin and struggle to keep up with constant changes to the requirements of running a payroll.

4. Recommendations:

4.1. The draft Apprenticeship Levy regulations setting out the provisions for assessment, payment and real time information reporting should be published for consultation as soon as possible

4.2. The Government should ensure the availability of the £15,000 allowance is as well publicised as possible – remembering those who due to age, disability or geographical location, may not always see HMRC’s electronic communications to employers

4.3. Ideally, the allowance should be applied automatically, but failing that it should be made crystal clear to the 98% of employers who are not supposed to be within scope of the levy, as to what they need to do to claim the allowance. It should also be made as easy as possible to claim the allowance late and obtain swift repayment of any amounts incorrectly paid.

5. About us

5.1. The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes. Everything we do is aimed at improving the tax and benefits experience of low income workers, pensioners, migrants, students, disabled people and carers.

5.2. LITRG works extensively with HM Revenue & Customs (HMRC) and other government departments, commenting on proposals and putting forward our own ideas for improving the system. Too often the tax and related welfare laws and administrative systems are not designed with the low-income user in mind and this often makes life difficult for those we try to help.

5.3. The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities.

July 2016


[1] https://www.gov.uk/government/publications/apprenticeship-levy

[2] The Employment Allowance came into effect in April 2014 and provides eligible employers with a reduction of up to £3,000 (was £2,000 up to 5 April 2016) in their National Insurance contributions (NICs) which they pay on their employees’ wages

[3] A few employers are exempt from digital submissions under the Real Time Information regime – see here for more information: https://www.gov.uk/guidance/find-out-which-employers-are-exempt-from-online-payroll-reporting

[4] https://www.gov.uk/government/news/hundreds-of-thousands-of-small-businesses-supported-by-the-employment-allowance

[5] That is, those who take on a personal assistant to help them live independently. LITRG produces a website dedicated to helping them understand their responsibilities – www.disabilitytaxguide.org.uk

 

Prepared 4th July 2016