Confusion leading to Apprenticeship Levy investigations

25-Mar-2019 - Last updated on 25-Mar-2019 at 09:57 GMT

Confusion over the Apprenticeship Levy has led to a rise in HMRC investigations

Investigations into the underpayment of the Apprenticeship Levy by HMRC have more than doubled in the past year.

According to accountancy group UHY Hacker Young, HMRC launched 84 investigations in the past 12 months, up from 33 in 2017/18. It attributed the rise in investigations to businesses finding the Levy “complex and difficult to comply with”. UHY Hacker Young said this confusion was leading to businesses underpaying, which potentially left them exposed to substantial fines.

The Institute of Directors has suggested that a lack of clear information on how to pay the Apprenticeship Levy and its rushed implementation in April 2017 may have created confusion amongst businesses.

Under the Apprenticeship Levy, any business with an annual payroll of more than £3m is required to pay 0.5% of its total wage bill – minus a £15,000 allowance – into a pool on which it can then draw to fund approved training schemes.

Recent figures showed that the majority of the Apprenticeship Levy has yet to be drawn by businesses to fund training programmes.

HMRC also collected an extra £6.2m through these investigations last year, up from £5.2m in 2017/18.

The amount that HMRC suspects businesses to have underpaid through the Apprenticeship Levy was £13.6m in 2017/18. According to UHY Hacker Young, this suggests HMRC sees the Apprenticeship Levy as a potential risk area for underpaid tax and may further increase its compliance resources in this area.

Clive Gawthorpe, partner at UHY Hacker Young, said: “The fiendishly complex Apprenticeship Levy is clearly causing problems for businesses.

“The increase in investigations suggests that 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 businesses group may be liable to pay the Levy. However, there is little guidance to help businesses calculate their liabilities.

“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.”

The Levy recently came under criticism from chief executive of training awarding body FDQ Terry Fennell, who said it was hard to police and prohibitive to smaller businesses, while the National Audit Office said it wasn’t currently cost-efficient.