Number of investigations into apprenticeship levy underpayment doubles in a year

25 Mar 2019 By Maggie Baska

HMRC says £13.6m went uncollected in 2017/18, but experts claim system’s ‘fiendish complexity’ is hindering businesses

The number of organisations being investigated for underpayment of the apprenticeship levy has more than doubled in a year, according to new research which experts said demonstrated the complexities involved in administering the scheme.

A Freedom of Information (FOI) request by national accountancy group UHY Hacker Young found Her Majesty's Revenue and Customs (HMRC) has launched 84 separate investigations in 2018/19, up from 33 the year before.

HMRC said businesses collectively underpaid £13.6m in levy funds in 2017/18. 

Under the apprenticeship levy, businesses with an annual payroll of more than £3m must pay 0.5 per cent of their total wage bill – minus a £15,000 allowance – into a pool which they can then draw on to fund approved training schemes.

UHY Hacker Young said a growing number of employers found the levy complex and difficult to comply with, which led them to inadvertently underpay and left them exposed to potential fines. 

HMRC generally gives eligible businesses 30 days’ notice that they have not paid the levy. It has the power to lodge “inaccuracy penalties” of up to 30 per cent of the amount owed for inadvertent non-payment, while deliberate avoidance of the levy can see a fine of up to 100 per cent of the outstanding amount.

Clive Gawthorpe, partner at UHY Hacker Young, said the “fiendishly complex” levy system was at the root of the problem. He said the increase in investigations suggested HMRC “focused on larger businesses initially, as the value of potential underpayment was higher, and is now widening its net to smaller businesses too”. 

“We have seen additional problems arise among large businesses where several different parts of the same business group may be liable to pay the levy,” Gawthorpe said. “The high number of investigations HMRC is launching into underpayment is a symptom of the wider problems that are hampering the scheme’s effectiveness. These urgently need addressing.” 

Simon Ashworth, chief policy officer at the Association of Employment and Learning Providers (AELP), agreed the complexity of the apprenticeship levy “doesn’t help”.  

“The level of underpayment may not seem very much for a tax that yields £2.2bn each year, but every penny is needed to also fund the apprenticeships of non-levy-paying SMEs where there is significant unmet demand,” Ashworth said. “HMRC are right not to take this matter lightly.”

He added online calculator tools were available for employers to identify how much levy they needed to pay, but many relied on a training provider to help them navigate the complexities.

The FOI revealed HMRC recouped £6.2m in unpaid levy funds last year, up from £5.2m in 2017/18.

An HMRC spokesperson said the levy helped deliver new apprenticeships and supported quality training by putting employers at the centre of the system. 

They added: “Initially, HMRC allowed time for employers to meet their obligations in respect of the new levy and issued reminders as to those obligations. Using data from the first full year that the levy had been in operation, HMRC was able to gain a better understanding of compliance and focus more resources to interventions accordingly.”

UHY Hacker Young said many businesses still saw the apprenticeship levy as an employment tax. A spokesperson for the Institute of Directors (IoD) said complaints “generally centred upon the use of funds rather than the actual paying of the levy”.

They added: “In March 2018, we found that one in seven firms simply wrote the levy off as a tax, due to their struggles putting the funds into action, whether due to a lack of relevant courses available or the overall complexity of the system. Clearly, this represented a missed opportunity.”

The IoD pointed to new levy reforms coming into effect next month which will introduce greater flexibility in the use of funds. Chancellor Philip Hammound announced in his spring statement that the amount SMEs are expected to contribute towards training apprentices as part of the co-funding arrangement will drop from 10 to 5 per cent, which he claimed would bring a £695m saving for businesses. 

Hammond also brought forward to next month the increase in the amount of levy funding that organisations will be allowed to share with their supply chain, which is set to increase from 10 to 25 per cent.

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