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HMRC internal manual

Apprenticeship Levy Manual

Modified PAYE schemes: example 2

Example 2 – an employer operating a modified PAYE scheme has over-estimated their pay bill

An employer has a modified PAYE scheme and a total pay bill of £5 million, of which £3.6 million relate to earnings subject to Class 1 secondary NICs. They have a total levy liability of £18,000 and have full use of the £15,000 allowance and pay the £3,000 due at £250 per month.

At the end of the tax year, the employer’s pay bill for that year was actually £3.4 million. The employer sends a NICs settlement return to reflect the lower amount of Class 1 secondary NICs due. The employer also re-calculates their levy liability for the year.

£3.4 million x 0.5% = £17,000 total levy liability

Offsetting the full £15,000 levy allowance means that the total levy owed for the year is £2,000. They have already paid £3,000 based on their estimated pay bill and are now owed a refund of £1,000. They submit an updated EPS and must use the £1,000 refund against their other PAYE liabilities, before claiming a refund.