Apprenticeship Levy April 2017
Posted: Nov 09, 2017
For contractors April often is a bad month! Last year regarding travel and subsistence contractors saw an end to tax relief last year and in the month of April 2017, especially hitting the take home pay of Public Sector PSC and umbrella contractors.
If you are a personal service company (PSC) contractor operating in the public sector, as of April 2017 the organisation that pays the fee direct to the Personal Service Company to determine if the relationship involving the worker and end client is legitimately one that the HMRC will class as employment. If by those standards, HMRC classifies it to be employment, then the organisation must take away both income tax and Employee’s National Insurance Contributions at the value of 12% and from the payment put into the PSC. This causes and instant impact on the PCS’s cash flow.
Secondary effects in regards to the Public Sector are that organisations must pay the Employer’s National Insurance Contributions at 13.8% rate to HMRC and thus as the Public-Sector budgets would have not prepared for this expense it is has depressed contractor rates. This draws conflict between both parties, the PSC contractor who cannot afford the cash flow hit and the Public-Sector organisation who also cannot afford to pay says Paul one of the Oxford Builders contractor.
The even shoddier news is that April 2017 has seen the introduction of a new tax law ‘Aprenticeship Levy’. Which will affect the same PSC contractors and Umbrella Company contractors.
The Apprenticeship Levy on all earnings is subjected to Class 1 secondary NI contributions, for Umbrella companies and Public Sector organisational figures it totals to 0.5%. Tax responsibilities such as deducting the employment taxes, sits with the business nearest the umbrella company or in the chain.
Say you are a contractor earning £300.00 per day you will receive an apprenticeship levy bill of approximately £30.00 per month. Thus meaning for umbrella companies the Apprenticeship Levy, like Employer’s NI Contributions will be deducted from the contact rate.
The last two years Contract Umbrella have spent trying to clarify to the HMRC, MP’s and BIS the complex issues under the employment model causes directly due to highly inflated payroll, also encompassing Umbrella and Recruitment companies. Due to the way the legislation is written the payroll bill never precisely demonstrates the genuine size of the business, thus why it is never taken into account. There was a statement posted from the HM Treasury regarding the consideration of indemnity for Umbrella companies and Recruitment agencies;
"Creating exemptions for particular employers; or for the earnings of particular employees, would risk increasing complexity and undermine the simplicity that the government is trying to achieve."
Although, the Minister for Apprenticeship and Skills stated there’s no need to worry because: "Apprenticeships are the cornerstone of the skills systems and provide opportunities for all sectors and at all levels."
To conclude there will be no exemption, therefore processes will have to conquer the Apprenticeship Levy. The Employer’s National Insurance Contributions and Apprenticeship Levy will now as of April 2017 display as ‘Employment Taxes’.
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