From 6 April 2017, the Apprenticeship Levy came into place, applying to employers with an annual pay bill exceeding £3m. For some employers, this may be seen as an employment tax, but organisations that modify their training and utilise the levy to its full potential, may actually enhance their businesses and encourage the upskilling of workers.
UCAS saw a 5% decrease in applicants for 2017 UK higher education courses, compared to the same point last year. Might this lead to an increased demand for apprenticeships? With less people taking the university route, it’s paramount to understand how the levy may affect you as well as the opportunities it could provide.
The Apprenticeship Levy is a new tax on UK employers with a yearly payroll bill exceeding £3m, which equates to approximately less than 2% of all employers. The purpose of the levy is to help fund new apprenticeships and improve the quality and quantity of them in England.
It’s important to note that, it's your responsibility to report to HMRC at the start of the tax year if:
You’ll need to continue reporting the levy until the end of the tax year if you’ve already started paying it, even if your pay bill doesn’t surpass £3m.
It's not necessary to report the levy if the employer hasn't had to pay it in the current tax year.
Your annual pay bill is all payments to employees that are subject to employer Class 1 secondary NICs, including wages but excluding benefits and expenses. Employers must also include payments to employees who aren't subject to NICs including:
If you fulfil the criteria, the amount you’ll need to pay is 0.5% of your total annual pay bill, minus the Apprenticeship Levy Allowance of £15,000.
Example 1: An organisation with a total annual pay bill of £5m will need to pay 0.5% minus £15,000.
Levy sum: 0.5% x £5,000,000 = £25,000
£25,000 – 15,000 = £10,000 annual levy payment
Example 2: An organisation with a total annual pay bill of £1million will not need to pay the levy.
Levy sum: 0.5% x £1,000,000 = £5,000
£5,000 - £15,000 = £0 annual levy payment
The money will be collected by HMRC via Pay As You Earn (PAYE) and will become available in a new Digital Apprenticeship Services (DAS) account.
Funds can be used to contribute towards apprentice training and assessments, with an approved Ofsted inspected training provider. It can't be spent on anything else, including internal training or apprentice salaries.
If the training exceeds the levy payments you’ve made, the Government have outlined that they'll 'co-invest', meaning they'll provide support to help you meet the additional costs, but only up to the maximum amount of funding available for that apprenticeship. It'll be set at the same co-investment rate as employers who don't pay the levy.
Those who don't fall under the scheme will receive 90% funding paid by the Government, requiring the organisation to contribute 10% of the cost.
Businesses employing 16-18 year old apprentices will not have to contribute towards the cost of the apprenticeship and will receive additional payments.
The scheme will only be used for delivering apprenticeships in England and funds can only be spent on apprentices whose normal place of work is in England.
Following the vote to Brexit, British employers may find themselves less able to rely on migrant workers for a wide variety of jobs, so more apprentices to learn these skills could be seen as being beneficial to the UK workforce.
If used efficiently, apprenticeships can not only support, but also enhance your whole business. They're not just for young people at the start of their career. The digital fund can be used to upskill your existing employees, as well as supporting and embracing new talent. If you already have programmes in place, these could be transferred onto apprenticeship schemes, thus providing consistency throughout your organisation.
The levy may place additional requirements on organisations, particularly managing the levy fund and ensuring the correct data is provided to HMRC to avoid penalties, but with the right guidance and support, the rewards should be easily reaped.
Take the time to review your annual payroll bill and see if this will impact your business in terms of reporting requirements. Also, consider the opportunities it will bring to upskill your workforce and become an employer of choice in a time of potentially uncertain employment conditions.
The content of this post is up to date and relevant as at 08/02/2017.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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