The national minimum wage and apprenticeship levy
The apprentice rate applies to those aged 16-18 training on an apprenticeship and to those aged 19 or over who are in their first year on an apprenticeship. After their first year they then become entitled to their appropriate age-related rate.
The following workers are not entitled to national minimum wage:
- self-employed individuals running their own business
- company directors
- members of the armed forces
- family members of the employer living in the employer’s home
The Apprenticeship Levy
The Apprenticeship Levy is being introduced on 6 April 2017. The levy requires all employers operating in the UK, with a pay bill over £3 million each year, to invest in apprenticeships.
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’s Class 1 secondary National Insurance contributions (NICs) 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 doesn’t include:
- earnings of employees under the age of 16
- earnings of employees who aren’t subject to UK NIC legislation
- earnings on which Class 1A NICs are payable, such as benefits in kind
Apprenticeship Levy is charged at 0.5% of your annual pay bill.
For the first month of the tax year:
- Divide your Apprenticeship Levy allowance by 12.
- Subtract this figure from 0.5% of your monthly pay bill.
For each of the following months:
- Calculate your total pay bill for the year to date.
- Add up your monthly levy allowances for the year to date.
- Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date.
- Subtract the amount of the levy you’ve paid in the year to date.
If you begin paying the levy part way through the tax year, you’ll need to calculate how much of your annual allowance has been accumulated in the current year. Divide your full annual allowance by 12 and multiply by the number of months since the start of the tax year. This figure is your allowance for the first month you report the levy.
Any unused allowance can be carried forward into the next month within the same tax year.
Report your Apprenticeship Levy each month using your Employer Payment Summary (EPS) and include the following:
- the amount of the annual Apprenticeship Levy allowance you’ve allocated to that PAYE scheme
- the amount of Apprenticeship Levy you owe to date in the current tax year
You don’t need to report Apprenticeship Levy on your EPS if you haven’t had to pay it in the current tax year.
If you would like advice in relation to the above or in respect of your position more generally then please don’t hesitate to contact us.
This is intended as a summary and overview of the tax situation and no action should be taken without first seeking professional advice specific to your circumstances.