HMRC guidance: Councillors and apprenticeship levy

HMRC official statement: Treatment of councillors in a local authority payroll apprenticeship levy

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Purpose

This document explains how councillors’ remuneration should be treated for apprenticeship levy purposes, including where a local authority operates a separate payroll or PAYE scheme for councillors, with reference to HMRC’s Apprenticeship Levy Manual.

Legal basis of the apprenticeship levy

The Apprenticeship Levy applies to employers with an annual pay bill exceeding £3 million and is charged at 0.5 per cent, after the annual £15,000 levy allowance.

For levy purposes, “pay bill” is defined as the total of all earnings on which the employer is liable to pay Class 1 secondary (employer) National Insurance contributions

Key principle:

If employer Class 1 NICs are due, the earnings are included in the apprenticeship levy pay bill

Employment and NIC status of councillors

Local authority councillors are statutory office holders, not employees for employment law purposes. However, under National Insurance legislation:

  • earnings from holding an office are treated as earnings of an employed earner
  • Class 1 employee and employer NICs apply to councillor allowances, subject to the usual thresholds.

Accordingly, councillor remuneration is:

  • subject to PAYE income tax
  • subject to Class 1 primary and secondary NICs
  • earnings for apprenticeship levy purposes.

Because employer Class 1 NICs arise, councillor allowances must be included in the authority's apprenticeship levy pay bill

Impact on apprenticeship levy calculations

Councillor pay must be included.

Local authorities must include councillor allowances when:

  • determining whether the £3 million levy threshold is exceeded
  • calculating the monthly apprenticeship levy due at 0.5 per cent.

There is no exclusion in the legislation or HMRC guidance for:

  • office holders
  • elected members
  • councillors.

The determining factor is Class 1 secondary NIC liability, not employment status

Authorities operating a separate councillor payroll

Many councils operate:

  • one PAYE scheme for employees, and
  • a separate PAYE scheme for councillors.

HMRC guidance is clear that PAYE scheme structure does not alter Apprenticeship Levy liability. Employers must assess levy liability based on total Class 1 secondary NIC earnings across all PAYE schemes

Correct approach

  • Aggregate Class 1 employer NIC earnings from:
    • employee payroll(s), and
    • councillor payroll(s)
  • Apply the single £15,000 annual levy allowance across the total pay bill
  • Allocate and report the allowance through the Employer Payment Summary (EPS) as required.

Running a separate councillor payroll does not justify excluding councillor pay from the levy.

Governance, audit, and compliance considerations

Authorities should:

  • ensure councillor pay is correctly flagged as Class 1 NIC earnings in payroll systems
  • reconcile Apprenticeship Levy calculations across all PAYE schemes
  • document the methodology to support internal audit and external assurance
  • periodically review arrangements to ensure continued compliance with HMRC guidance.

Key HMRC references