HMRC investigations into the underpayment of the Apprenticeship Levy have increased sharply, more than doubling from a meagre 33 in 17/18 to 84, according to new data.
As an accountant who specialises in working with, and optimising the performance of, small and medium sized businesses, we acknowledge the value of apprentices and the contribution they can make to businesses of any size.
So what’s going on, and why can’t employers get to grips with the levy?
The above numbers don’t exactly warrant a crackdown for the ages, but it is an uptick of HMRC investigations into Apprenticeship Levy underpayment and signals HMRC's soft touch approach is at an end.
HMRC said their initial softened stance was to give employers a chance “to meet with their obligations” in respect of the new levy and it had “issued reminders” as to those obligations.
But now the tax authority is zoning in on underpayment.
“Using data from the first full year that the levy had been in operation for; HMRC was able to gain a better understanding of compliance and focus more resource to interventions accordingly,” a statement said.
The reasons for underpayment of the Apprenticeship Levy relate to two issues: payroll software and connected companies. The payroll software issue first reared its head when the levy was brought in.
Normal national insurance is calculated from a threshold upwards. That threshold this year is £162-a-week. But the levy is calculated from pound zero and is also cumulative so quite difference from how national insurance is calculated.
The reality is if you ignore that £162 on everyone's records, you've underpaid it.
Although the error was quickly fixed by any large payroll software provider that initially got it wrong in 2017, it could persist if you've got bespoke software or you haven't upgraded your software properly.
If you do have an up-to-date, off the shelf software and it’s coughing out an incorrect figure, then you need to be asking some serious question of your provider.
The other issue is connected companies.
Many businesses don’t realise they actually are connected companies which means they don’t get the £15,000 levy allowance which offsets any amount due for a business with pay subject to employer’s NI of less than £3m.
As a result they aren’t paying the ley when they should and simply neglect to pay the levy.
Let’s say a woman owns a big company with a significant payroll, while her husband owns a small business, and there's inter-trading between them both. They could be classed as connected and the small business has to pay the levy.
It's those ownership and interdependence issues that businesses may struggle with.
The legislation to decide who is and isn't connected has been in place for a long time, but the amount of money at stake was small. HMRC and most employers didn't pick up on it but now the amounts are bigger, it's easy pickings for HMRC.
The penalties work the same as anything else. It's a percentage of the tax owed, but it mushrooms because the amount of tax is big.
If you’re having issues or uncertainties surrounding your company’s payroll or the apprenticeship levy, get in touch with our team and we’d be more than happy to plan the best direction for you to take so you can avoid the penalties mentioned above.