Apprentice levy - charged by umbrella?

[psychocandy]

Im guessing its because, according to legislation, if your wage bill is over a certain amount? As an employee of the umbrella is this why your caught?

Im guessing if you get a payroll provider to just do payroll then this would not apply? Since your psc does not have a wage bill of over £15million. NLUK probably does though.

EDIT: Bummer. Apparently, it does apply because it counts as part of the PS clients wage bill. Cheers government.

[TheFaQQer]

See post 4 in the FAQ: http://forums.contractoruk.com/publi...ml#post2394879

If your employer (agency or umbrella company) has a PAYE bill of over £3 million a year, then they have to pay 0.5% of that bill into a government fund for apprenticeships. As with Employers NI this is another charge that should be met by the employer, but they only have two places to get it from - the client or the contractor. I expect to see this charge being another one that is pushed down to the contractor.

[TheFaQQer]

To be totally accurate, the apprenticeship levy affects every business that pays Class 1 NICs, not just those with a payroll bill over £3 million. However each company is given a £15000 pa allowance, so in practice it means that it only affects companies where the payroll bill is over £3 million.

Eg1:

Company employs 100 staff at £30k each.
Total payroll = £3 million
Apprentice levy = 0.5% x £3million = £15000
Minus allowance = £15000 - £15000 = 0

Eg2:

Company employes 100 staff at £40k each
Total payroll = £4 million
Apprentice levy = 0.5% * £4 million = £20000
Minus allowance = £20000 - £15000 = £5000

So it's not quite as simple as paying an extra 0.5% - the bill is 0.5% minus £15k, though I can understand why an umbrella company would simplify things by just pushing a nice round 0.5% down onto the individual.

[northernladuk]

You seem to be doing a lot of guessing today. How about doing a bit of research, reading and ringing around first?

[lucyclarityumbrella]

Now now children!
The issue is the fact that the payroll is artificially inflated by the rates, there are going to be very few if any brollies which have not been caught. The way the umbrella business is structured it means that the business must make payment from the monies received, the contractor's salary is not available until the business costs have been met.
Unfortunately, it is also highly unlikely that any PS bodies will fall under the £3m threshold either!

[mike67]

A follow up query on the Apprenticeship Levy and umbrella companies. Before doing so, I agree it is ridiculous that umbrella companies should have to pay the apprenticeship levy.

However, I am unclear how charging the levy to the workers squares with the legislation which says that no employer can make from any payment of earnings any deduction in respect of apprenticeship levy for which the company is liable or otherwise recover the cost, or any part of the cost, of their liability to apprenticeship levy from any person who is or has been a relevant earner. (Section 106 of the Finance Act 2016).

Does the brolly just put up their margin and essentially hide the reason for doing so rather than saying it is to cover the levy?

In a small way it makes sense that the cost is not passed on to the contractor as they will not be able to use it to fund an apprentice whereas potentially the umbrella company could do so?

[lucyclarityumbrella]

Hi Mike67

Let me explain our rationale behind this further to detailed conversations with HMRC:

In considering the terms of the legislation we need to be precise and note at the outset that Section 109 prohibits recovery from your "earnings" which is not the same as from "payments made to a worker".

Our business is based on Contracts/Agreements between third parties and Contractor Umbrella Limited for the services of our employees. In this case, we have a contract between the agency/end client and Contractor Umbrella Limited for your services. Funds received flowing from that Contract belong to Contractor Umbrella Limited and we meet our obligation to pay Employment Taxes from those funds. In addition we deduct an arbitrary margin in arriving at “earnings” of employees that are then subjected to Income Tax and National Insurance Contributions.

Our standard Contract of Employment includes the following terms:

• Your pay is payable at monthly intervals (or such shorter intervals as may from time to time be notified in relation to particular assignments) in arrears on the basis from time to time agreed with you and will be calculated as follows:

• when working on assignments you will be paid at the "assignment rate". The assignment rate will be [the London Living Wage, as defined by The Living Wage Foundation] in addition to which you may be eligible from time to time to a bonus in respect of Company profit generated from work on assignments. The bonus applicable to any assignment will vary from assignment to assignment and will be notified to you prior to commencement of each assignment but in any event shall not be payable unless and until the Company has been paid in full for your work in the relevant assignment, you having a responsibility to help the Company receive payment for the assignment

• Your entitlement to be paid at any assignment rate [greater than the London Living Wage] is payable subject to any profits generated from the assignment; bonus payments will not be payable should the assignment not return a profit for the Company. You will be reasonably expected to accept assignments that the Company sources from time to time.

So, in summary, your “earnings” amount to the London Living Wage plus a Bonus based on the profit that Contractor Umbrella Limited makes from the Contract with the agency/end client. In calculating that profit Contractor Umbrella Limited has first to deduct payments that have to be made to HMRC, (secondary Class 1 contributions and, from April 2017 the apprenticeship levy), and an arbitrary margin that covers general running costs. In other words the “Bonus” part of your earnings cannot be calculated or be available until after statutory payments have been set aside for payment to HMRC.

It follows that we are not recovering the cost of the apprenticeship levy from your earnings.

[mike67]

Thanks Lucy for your comprehensive and detailed explanation.

Wasn't having a go at umbrella companies - I am looking at a new role inside IR35 and the agency said they don't work with PSCs for inside IR35 roles partly because they can't recover the apprenticeship levy they will be charged.

Just wanted to understand how umbrellas can cover the cost whereas the agency cannot. Thanks for the info.

[lucyclarityumbrella]

No worries Mike67 - apologies if that came across as blunt

Some umbrellas may have simply changed their margin to a percentage as the AL will differ dependent on the rate. My initial thoughts would be that the end client or agencies would simply look to amend the rate to cover this too.

If you want any more info, then please do give me a shout

[mike67]

No worries Lucy. Unfortunately the agency is tied into a fixed arrangement on the mark up it can charge so they can't increase it to cover extra costs like this.