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Understanding the new
apprenticeship levy
From April 2017, a new apprenticeship levy is
set to be introduced for employers with pay
bills of over £3 million per annum, in order for
them to invest in apprenticeship programmes.
The Government’s stated aim is to generate
additional, high-quality apprenticeships by the
year 2020.
The new levy rate
Under the new regulations, a levy will be charged at 0.5%
of an employer’s pay bill. Only those employers with pay
bills of £3 million or more per year will be required to pay
the levy, which applies to employers throughout the UK.
However, to help employers manage the charge an
allowance worth £15,000 (0.5% x £3 million) per year
will be available. The allowance will accumulate over
the course of a year, and will be provided to employers
monthly in the form of a concession of £1,250. If a
business has unused allowance at the end of the month,
this will be carried over to the following month.
Calculating the pay bill
An employer’s pay bill is based on the total earnings
that are liable to Class 1 secondary national insurance
contributions (NICs).
A business’s earnings in this instance include
remuneration or profit that arises from employment – this
can range from wages, bonuses, commissions and any
pension contributions on which NICs are paid.
An employer’s levy must be calculated, reported and paid
to HMRC via the Pay as You Earn (PAYE) system.
Making use of the money
The Government plans to establish a Digital
Apprenticeship Service – an online system that employers
will be able to utilise to search for potential apprentices,
locate any relevant apprenticeship providers and pay any
apprenticeship training or assessment bills using digital
vouchers.
Please note that this digital service will only be available
in England. Separate arrangements for Wales, Scotland
and Northern Ireland are due to be put into place.
The Government anticipates that smaller businesses will
be able to benefit from any leftover apprenticeship levy
money that is not used by employers who are liable to
pay the levy.
Will the levy apply to current
apprentices?
Employers who recruit apprentices before April 2017 will
be able to access funds for the duration of the employee’s
apprenticeship. Businesses will be able to choose from
a range of options as to which training programmes and
schemes they wish to offer to their apprentices, including
both vocational and professional qualifications.
For information and advice on all aspects of
running a business, please contact us.
Spotlight on capital gains tax
Capital gains tax (CGT) made the headlines earlier this year
when, to many people’s surprise, the then Chancellor George
Osborne reduced the rates for 2016/17. With this in mind, we
consider some of the key features of the current system.
Q. How is CGT charged?
A.
As a basic rule, CGT is charged on the difference between what you
paid for an asset and what you receive when you sell it, less your annual
CGT exemption (£11,100 for 2016/17) if this has not been set against
other gains.
The rate of CGT payable on gains depends on the level of the individual’s
taxable income and gains for the tax year. Effectively, the rules operate by
ensuring that any unused basic rate band (£32,000 in 2016/17) can be used
in the most beneficial way to reduce the CGT charged.
The figure for total taxable income and gains is calculated after taking into
account all allowable deductions including losses, personal allowances and
the CGT annual exempt amount.
Q. What are the current rates?
A.
Prior to 6 April 2016, CGT was charged at 18% where the individual was
a basic rate taxpayer, or 28% to the extent that the individual was a higher
rate taxpayer or the gains exceeded the unused part of an individual's basic
rate band. However, in the 2016 Budget, the Chancellor announced that the
18% rate would be cut to 10%, while the 28% rate would fall to 20%. These
changes came into effect from 6 April 2016.
Q. Do these new rates apply across the board?
A.
No, the CGT rates remain at 18% and 28% for residential property
gains, non-resident CGT gains, ATED-related gains and gains accruing under
the carried interest rules.
Q. What about Entrepreneurs’ Relief (ER) and
the new Investors’ Relief (IR)?
A.
ER and IR may be available for certain business disposals and have the
effect of charging the first £10 million of qualifying lifetime gains for both
ER and IR at an effective rate of 10%.
IR applies where qualifying shares have been issued by an unlisted trading
company on or after 17 March 2016 and have been held for a period of
three years from 6 April 2016. Many other rules and conditions apply, so
please speak to us first to ensure that you maximise any relief.
Q. How can I minimise my liability to CGT?
A.
The good news is that there
are a number of strategies that can help to
mitigate a potential liability to CGT. Consider the following action points:
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Transfer assets
– Is it possible to transfer assets to a spouse or civil
partner or hold them in joint names? Holding an asset in joint names
means the annual exempt amount for each individual (£11,100) is
deducted from the gain before tax is due.
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Make pension contributions
– Increasing your pension contributions
could allow you to extend the limits of the lower tax rate band. Any gains
realised from other assets are taxed in accordance with this extended
band after allowances have been taken into account.
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Utilise reliefs
– It is possible that reliefs could reduce a 20% CGT bill
significantly. However, it is important to consult with us about the timing
of any sale, and the CGT reliefs and exemptions to which you might
be entitled.
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Sell gradually
– Individuals with a particularly large gain may want to
realise it gradually to take full advantage of more than one tax year’s
allowance, thus sheltering the gain from a higher CGT charge.
Please contact us for further advice relating to CGT.