The Apprenticeship Levy was introduced in April 2017 and is a form of taxation designed to help companies offer more apprenticeships. The Levy is a small tax charge usually 0.5% of the gross earnings.
Prior to the Levy being introduced, there was an extended dialogue between recruiters, umbrella companies and HMRC regarding an exemption to the Levy for these parties who engage contractors under an overarching contract of employment. However, this dialogue was unproductive, so the Apprenticeship Levy remains a component of the statutory costs of employment on your pay calculation and is paid directly to HMRC.
The apprenticeships must last for at least one year and one day, benefitting from the Apprenticeship Levy could prove tricky for a contractor on a temporary contract of under 12 months. By providing continuity of employment, a compliant umbrella company would help with this.
The umbrella company pays the statutory costs of employment, such as Employer’s National Insurance, from the funds received from the recruitment agency or end client. The Apprenticeship Levy is another one of these statutory costs, and so will appear on the contractor’s payslip calculation alongside these other statutory costs. Once HMRC have received the Levy payment, it is set aside for the training of apprentices.
The way in which the Apprenticeship Levy gets applied by umbrella companies, on behalf of their contractors, can cause some confusion. Any Apprenticeship Levy deductions must be explained to and agreed by an employee at the point of on-boarding.
Contractors should get both an assignment rate and a separate pay rate. Whether or not the pay is uplifted to account for the Levy is at the agency’s and end client’s discretion.
The assignment rate is the amount paid by the end client for the services provided. This also includes all the necessary employment costs, such as the Apprenticeship Levy.
The separate pay rate, meanwhile, is what is received before personal taxes, such as Income tax & Employees’ NICs, get deducted.
On your payslip, you will see a small charge for Apprenticeship Levy, which is 0.5% of your PAYE per week, in addition to our company margin. For absolute clarity, Rocket Paye do not benefit from this charge financially and do not spend this money. Any funds that aren’t spent on Apprentice’s or training, is retained by the government for use elsewhere.