Apprenticeship Levy: how it'll hit contractors

With so many changes to professional contracting coming into force on April 6th, you’d be forgiven for overlooking the Apprenticeship Levy (AL); but it too is another stealth tax, writes Damon Cochrane, operations director at Orange Genie.

What is the Apprenticeship Levy, and who will pay it?

The tax is designed to fund the government’s commitment to deliver three million new apprenticeships and will be raised by levying a 0.5% charge on all companies whose wage bill exceeds £3million.

So hirers, agencies and umbrella companies are all likely to be required to pay the payroll levy on the temporary workers they payroll. Unfortunately though, they will be unable to access the funds to upskill the temporary labour force.

Also unfortunate is the fact that the rules are drawn in such a way that the 95% of contractors working on assignments of less than 52 weeks will be unable to benefit from the initiative. It is a payroll tax, meaning that ultimately it will be paid by the employer and not the worker. It will be paid in exactly the same way that Employers’ National Insurance Contributions operate.

How will the Apprenticeship Levy affect contractors?

In practical terms, the Apprenticeship Levy will not show up on your payslip as an umbrella contractor. However, those contractors whose brolly provides them with an ‘invoice reconciliation’ will see it in the calculation of gross pay. This helpful breakdown outlines how the umbrella company calculated the contactor’s gross pay on the payslip, and the AL would be shown in that calculation.

Whether your brolly’s paperwork makes it clear or not, all brolly contractors on PAYE (including those on agency PAYE) are strongly urged to ensure the AL is being passed down the supply chain through uplifted rates from the hirer, and doesn’t adversely affect their net pay as a result.

What should I ask myself about the Apprenticeship Levy?

To reiterate, if you’re operating through agency PAYE or umbrella PAYE you need to ask:

  • Has the agency uplifted my pay rate to cover the additional charge?

If ‘Yes’, as we largely anticipate will be the case, you should be fine. But if ‘No,’ and the agency has not uplifted your pay to cover the additional cost, you will see a reduction in your gross pay.

Are limited companies (PSCs) caught by the Apprenticeship Levy?

There is (finally) some good news if you’re a contractor who is not on an agency or umbrella PAYE. The Apprenticeship Levy shouldn't affect contractors operating via their own limited company (PSC), as they are below the £3million threshold. Those public sector workers operating through managed PSCs may be caught under the new public sector off-payroll rules, however. Such workers will have to wait for the next draft of the proposed legislation to find out. 

Will the government U-turn on the Apprenticeship Levy?

But any bigger let-offs are unlikely. The government’s eyes are open to the examples of unfairness they’ve received from our sector about the AL; they understand the argument that it penalises the contingent workforce but they will press ahead with it, as they need the money to fund this politically eye-catching initiative.

Tuesday 7th Feb 2017
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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