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HMRC internal manual

Apprenticeship Levy Manual

Specific sectors and employees: special purpose vehicles

A Special Purpose Vehicle (SPV) will have a levy liability if it is liable for the payment of Class 1 secondary NICs. Whether it has the full annual allowance of £15,000 to offset against its liability will depend on whether it is connected to another employer by virtue of the connected rules.

Although typically the existence of an SPV is short-lived, an SPV is no different to any other company as far as the Apprenticeship Levy is concerned. It follows the general principles of connected companies in that connection is determined at the start of the tax year. If the company is created mid-year then it is not connected during the tax year of creation. Connection is established at the start of the next year.

The examples below illustrate some typical situations for SPVs.

Example 1 - Company A sets up an SPV in tax year 2017 to 2018. SPV ceases in tax year 2017 to 2018.

Company A is not connected to any other companies and so has the full annual levy allowance of £15,000. It has an annual pay bill of over £3 million, so it starts reporting and paying the levy in April 2017.

In July 2017, Company A sets up an SPV to produce a TV programme. Company A owns 100% of the SPV. Because the SPV has been set up mid-way through the tax year, the issue of connection does not arise for that tax year, this is because whether or not companies are connected is determined at the start of the tax year. This means that the SPV will have the full annual levy allowance of £15,000 to offset against its levy liability. The SPV ceases to exist on 31 December 2017. Even though the SPV has only existed for part of the tax year, it is still able to offset the full £15,000 levy allowance against its levy liability.

Example 2 - Company B sets up an SPV in tax year 2017 to 2018. SPV ceases in tax year 2018 to 2019

Company B is not connected to any other companies and so has the full annual levy allowance of £15,000. It has an annual pay bill of over £3 million so it starts reporting and paying the levy in April 2017.

In July 2017, Company B sets up an SPV to produce a film. Company B owns 100% of the SPV. Because the SPV has been set up mid-way through the tax year, the issue of connection does not arise for that tax year. This means that the SPV will have the full annual levy allowance of £15,000 to offset against its levy liability in 2017 to 2018. The SPV continues to operate into the next tax year (2018 to 2019). At the start of tax year 2018 to 2019, Company B and the SPV are considered connected by virtue of the connected companies’ rules, this is because Company B controls the SPV.  Company B and the SPV will have one annual allowance of £15,000 between them for the tax year 2018 to 2019. They must decide what portion of the allowance they will each have. They decide that Company B will have £14,000 of the allowance and the SPV will have £1,000 of the allowance.  The SPV eventually ceases to exist on 31 July 2018. Even though it has only existed for part of the tax year 2018 to 2019, it is still entitled to its full allocation of the levy allowance (£1,000) for that year.

Example 3 - Non-UK Company C sets up SPV in tax year 2017 to 2018, Company C also owns 3 other UK companies D, E and F

Company C operates outside of the UK. It has no liability to pay Class 1 secondary NICs and so does not have a liability to pay the levy.

In July 2017, Company C sets up an SPV in the UK to produce a TV programme. Company C owns 100% of the SPV, and it also owns 3 others companies in the UK (companies D, E and F). Because the SPV has been set up mid-way through the tax year, the issue of connection does not arise for that tax year. This means that the SPV will have the full annual levy allowance of £15,000 to offset against its levy liability. The SPV continues to operate into the next tax year (2018 to 2019). At the start of tax year 2018 to 2019, the SPV is considered connected to Companies D, E and F by virtue of the connected companies’ rules, this is because they are all controlled by the same company (Company C). The SPV and companies D, E and F will have one annual allowance of £15,000 between them for the tax year 2018 to 2019. They must decide what portion of the allowance they will each have.