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The apprenticeship levy and pooled payrolls

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23rd Dec 2016
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Pooled payrolls might not be very widespread these days but they are still frequently used in some sectors.

They pose particular issues for employers in relation to the apprenticeship levy, the levy allowance, and the reporting procedures.

Terri Bethel of the CIPP policy team considers HMRC’s recent guidance.

Pooled payrolls

Pooled payrolls occur where more than one employer uses the same PAYE reference number to report PAYE information to HMRC.

For example, where a local education authority (LEA) continues to provide payroll services to a school that has transferred out of maintained status (it is now voluntary-aided, a foundation school or an academy), the LEA may run the school’s payroll within its own PAYE scheme instead of the school setting up its own one. As a result, the Real Time Information (RTI) submissions contain information for more than one employer’s workers.

HMRC no longer accepts requests from employers to pool their PAYE schemes but there are several existing arrangements still in use.

Implications for the apprenticeship levy

From April 2017, employers are required to calculate the apprenticeship levy due for each tax month, pay this amount to HMRC with other remittances, and include details in their employer payment summary submissions. Only employers who have no levy to pay are excluded from this duty, which will only happen if the levy allowance for the tax month exceeds 0.5% of the total value of the pay bill that month.

One levy allowance can be claimed for each PAYE scheme so a pooled payroll can only process one amount of levy allowance for the combined pay bills. (Leaving aside the restrictions for connected companies and charities, and employers with multiple PAYE schemes.)

Where a pooled payroll is small enough that 0.5% of the sum of the pay bills is less than the full monthly levy allowance (£1,250), no levy payment would be triggered anyway. But there are other scenarios that could result in an incorrect levy payment, or other issues.

• The pooled pay bill may be large enough to trigger a levy payment while the individual pay bills are small enough not to

• The levy payment for the largest employer in a pooled payroll could be increased by the inclusion of other employers’ pay bills in the total pay bill

• Where more than one employer in a pooled payroll has a large enough pay bill to be liable to make a levy payment, it would not be possible to report the separate liabilities to HMRC. In addition, the levy-payers would not be set up with separate digital accounts for apprenticeship funding, because these are also linked to PAYE references

Where all the employers in a pooled payroll are connected companies or charities, they would share one levy allowance in any case and so they can continue to run as a pooled payroll, regardless of the size of their pay bills. They would share a digital account for English apprenticeship funding.

What affected employers need to do

Where none of the employers in a pooled payroll expect to make apprenticeship levy payments in their own right, then they do not need to make any changes to the pooled payroll, even if the sum of their pay bills exceeds the trigger level (so long as their payroll software allows this).

Where a pooled payroll contains only one employer who is liable to make apprenticeship levy payments, the calculation must ensure that only that employer’s pay bill is taken into account, ignoring the smaller employers’ pay bills. Employers in this scenario should contact their payroll software provider to find out whether the software will be able to handle this situation correctly from April 2017. If the payroll software cannot exclude the other employers’ pay bills, then the largest employer would have to split from the pooled payroll and set up its own PAYE scheme. This may have implications for the continued feasibility of the pooled payroll itself.

Where more than one employer in a pooled payroll is liable to make apprenticeship levy payments, then the pooled payroll must be split so that each levy-payer has a unique PAYE reference. One employer can remain in the original PAYE scheme (with any employers that are too small to have a levy liability of their own, so long as the payroll software can handle this correctly – see above). The other employers must set up individual PAYE schemes.

All employers in pooled payrolls, including those where the total pay bill is currently below the levy trigger point, must monitor the level of their pay bills carefully throughout the tax year in case of increases that mean a levy payment is triggered, even if only for one tax month.

Note that the main employer who runs the pooled payroll could continue to provide payroll services for the employers who have had to leave the pooled payroll to set up their own PAYE schemes. So long as the apprenticeship levy calculation is carried out and reported for each scheme separately, the main employer could produce and submit RTI reports to HMRC and pay over remittances for the group.

It is worth noting that small employers within a pooled payroll may also be obliged to set up individual PAYE schemes in the future. Until 2018 at least, employers who do not pay the apprenticeship levy can pay their cost contribution for English apprenticeship directly to the training providers but the government intends to expand the digital service to all employers. At that point, all employers who use apprentices in England may need separate PAYE references.

In other guidance to software developers, HMRC has indicated that employers with a pay bill of at least £2.8m in the previous tax year need to report apprenticeship levy details to HMRC, and not only those employers who expect their pay bill to exceed £3m.

Setting up a PAYE scheme

Employers in a pooled payroll who find themselves having to set up a new PAYE scheme must do so between 6 February and the end of February, ready for the new tax year. This is not a large window, and setting up a PAYE scheme may have other consequences, so affected employers would be well advised to plan ahead.

To start setting up a PAYE scheme, go to GOV.UK and follow the instructions for setting up a new Government Gateway account.

At the end of the current tax year, the last full payment submission (FPS) on the old PAYE reference number would need to include leaving details for all records. After submitting that FPS, the first FPS for the new tax year must use the new PAYE reference number, with all year-to-date figures set to zero, and including the start date for the new payroll and for all the transferring employees.

Conclusion

The implications of the apprenticeship levy on pooled payrolls are varied due to the diversity of scenarios that might exist. We could add in the complexity of connected companies and charities in the private and voluntary sectors (within or outside the pooled payroll). Or the possibility that some employers who use third party payroll services may be unaware that they are even in a pooled payroll. Also, some payroll software providers may be unaware that their systems are being used for pooled payrolls and therefore have no intention of designing their apprenticeship levy fields and reporting to account for pooled payrolls.

Agents who supply payroll services through a pooled payroll are perhaps best placed to advise the employers within it about the implications and any decisions or actions that need to be taken. The employers themselves may be unaware of the size of the other employers or of the new apprenticeship levy and its implications.

Taken together with the limited access to the employment allowance, the original administrative and cost advantages of pooled payrolls may no longer outweigh the complications and missed opportunities that separate PAYE schemes bring.

A final point: The use of pooled payrolls is a historic anomaly that is not widely used anymore. Nevertheless, it is unfortunate that there is no guidance about them on GOV.UK, and no mention of them in the published apprenticeship levy guidance. This makes it difficult for affected employers and their agents to ensure that they understand and take account of the implications and avoid the risk of PAYE penalties.

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