In recent years, the government has sought to help British businesses benefit from apprenticeships, which are crucial for workforce planning and skills building.<\/p>\n
The introduction of the Apprenticeship Levy,<\/a> a payment designed to fund apprenticeship training, has encouraged companies to create apprenticeship opportunities to fill skills gaps and shortages that can hinder business growth.<\/p>\n However, small business owners may struggle to understand the scheme\u2019s financial complexities and how the scheme relates to initiatives like Employment Allowance<\/a>.<\/p>\n The Apprenticeship Levy and Employment Allowance are distinct initiatives, but they both involve aspects of employer financial management related to workforce costs.<\/p>\n HMRC has published guidance<\/a> to help determine whether businesses with multiple entities are \u2019connected\u2019 for the purposes of the Apprenticeship Levy and the Employment Allowance.<\/p>\n Understanding what \u2018connected entities\u2019 are and how they apply to your business is particularly important, and relevant to both initiatives.<\/p>\n Learn more about Employment Allowance<\/a>.<\/p>\n What exactly is a connected entity?<\/p>\n Understanding what constitutes a \u2018connected entity\u2019 is crucial because it affects eligibility and how allowances or levies are applied.<\/p>\n Connected entities are businesses or organisations that are linked because one controls the other or they\u2019re both controlled by the same parent company.<\/p>\n They can include companies, charities, and public bodies, each with their own specific rules.<\/p>\n companies \u2013 must follow specific rules about their connection to other companies. When it comes to who has control over the company, this can be determined, amongst other factors, by who has the most voting power or the majority of sharespublic bodies \u2013 usually have their own Apprenticeship Levy allowance, but this can change if they share control with another entity. They can\u2019t claim Employment Allowance unless they\u2019re also a charitycharities \u2013 if controlled by the same organisation as another entity, they might be connected, affecting their allowance claims.<\/p>\n HMRC\u2019s guide<\/a> explains further important nuances of the rules.<\/p>\n For example, if a company controls a charity, they are not considered connected for the purpose of claiming the Apprenticeship Levy or Employment Allowance.<\/p>\n However, if a charity controls a company, they are considered connected.<\/p>\n The general rule is that if two or more entities are connected, they need to share specific financial responsibilities.<\/p>\n This connection will affect how each entity pays the Apprenticeship Levy, and how Employment Allowance is claimed and used.<\/p>\n What is the Apprenticeship Levy, and how does it work?<\/p>\n The Apprenticeship Levy<\/a> is a government initiative to encourage employers to invest in apprenticeships.<\/p>\n It works like a tax collected by HMRC, based on 0.5% of a company\u2019s annual pay bill if it is over \u00a33 million.<\/p>\n Employers who pay the levy can access the funds through their apprenticeships service account and use the money to cover the cost of training and assessment for apprentices.<\/p>\n Other businesses, including smaller ones, can use any leftover funds for apprenticeships.<\/p>\n Employers also get a \u00a315,000 annual allowance<\/a> to reduce their levy payment, which must be shared among all connected entities.<\/p>\n Businesses need to understand their structure well to avoid problems with HMRC when calculating and paying the levy.<\/p>\n Why connected entities are relevant to Employment Allowance<\/p>\n Employment Allowance allows employers to reduce their Class 1 National Insurance contributions liability by up to \u00a310,500.<\/p>\n While it\u2019s an allowance and not a levy, it\u2019s managed across connected entities in a similar way to the Apprenticeship Levy<\/a>.<\/p>\n When entities are connected, only one can claim Employment Allowance.<\/p>\n Therefore, employers must know which entities are connected to their business.<\/p>\n Common errors and how to avoid them<\/p>\n