Small business owners to benefit from amendment to the Apprenticeship Levy

The Chartered Institute of Taxation (CIOT) welcomes a Government announcement that it intends to amend the Finance Bill so that many small business owners will benefit from greater flexibility in managing the cost of the Apprenticeship Levy.

The Apprenticeship Levy is due to apply from April 2017 and will be charged at the rate of 0.5 per cent of employers’ pay bills.  This is subject to a £15,000 levy allowance.  The Government originally proposed that if a group of companies were ‘connected’1 then only one employing company in the group could claim the £15,000 allowance. But it has now accepted that this could lead to a significantly higher number of employers subject to the levy than it had originally intended.  Accordingly, it has now decided to allow a group of connected employers the flexibility to decide the proportion of the £15,000 allowance to which each employing company will be entitled.

To benefit from this flexibility, each connected company must be an employer of staff in its own right, for example a family which owns a number of small businesses each employing their own staff, or a farmer who has diversified and runs different aspects of the farming business through separate companies.

Colin Ben-Nathan, chairman of the CIOT’s Employment Taxes Sub-Committee, said:

“Allowing connected companies to split the £15,000 levy allowance between them will mean they can use the allowance in full, so that provided their combined pay bill does not exceed £3 million they will not have to pay any levy at all.  This is very welcome and indeed consistent with the Government’s basic message that the levy should only impact those with pay bills of over £3 million.”

The Government has said that a decision to spread the levy allowance among connected companies must be taken at the beginning of the tax year and will be fixed for that tax year.

Notes for editors

1.               A company is connected with another company if one company controls another or the same person or persons has control of both companies and in certain other defined circumstances.

2.                   More information about the Apprenticeship Levy can be found here.

3.                   The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.