HMRC has begun checking compliance with the rules on the employment allowance and apprenticeship levy. What do you need to know?

Background. HMRC is concerned that employers and payroll agents are incorrectly claiming the employment allowance (EA) and paying the apprenticeship levy (AL) as they don’t understand the connected companies rule and the definition of NIable pay.

EA – connected companies

In order to assess entitlement to the EA a business must decide if it is connected to any others, as only one PAYE scheme within a connected group is entitled to it. The connection rule equally applies to charities. Once a decision has been made as to which scheme will make the claim for a tax year, this cannot be amended until the start of the next tax year. The connection rules are complex. HMRC began sending out messages in December to employers via their PAYE online accounts asking them to check they understood the connected companies rule.

Coronavirus Job Retention Scheme (CJRS). It’s clear that the EA cannot be claimed at the same time as making a claim for NI under the CJRS.

AL – NIable pay

Having issued warning messages about the AL in 2019, at the beginning of the coronavirus lockdown HMRC then started sending letters to employers asking them to explain if they understood the calculation for AL. The letter suggested that employers did not understand that the definition of “paybill” that is used as the basis for the levy calculation includes all earnings subject to Class 1 N, from pound one rather than from the NI threshold, and is a cumulative calculation across all PAYE schemes within one company. Like with the EA, the connected companies rule means that if the paybill of all connected PAYE schemes exceeds £3m, then the levy is due. The difference from the EA is that the £15,000 levy allowance can be split across numerous PAYE schemes within the group, but once that allocation has been made it is fixed until the start of the new tax year.

Pro advice. Check that your payroll software calculates the levy based on the paybill for all PAYE schemes within the company and that the YTD figure is reported on the employer payment summary.

The definition of pay that is used to calculate the apprenticeship levy uses all pay from pound one, without offsetting the NI threshold.

The next step

Connection rules — Weblink

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