Apprenticeship Levy – what does this mean to you?
With the Apprenticeship Levy due to be collected by HMRC from April 2017, you may be wondering what this surprise payroll tax will mean for your business. Announced in the government’s 2015 Autumn Statement, the levy is being put in place to help fund an increase in apprenticeship numbers and quality, and build an experienced workforce for the future.
Who is in scope to be effected?
The Apprenticeship Levy will be applied to all UK businesses in both private and public sectors. Businesses with an annual wage bill of over £3 million will have to make payments.
These larger organisations will need to pay the levy, regardless of whether they reclaim their digital funds to purchase apprenticeship training and services or not. Every business who pays the levy will be entitled to an allowance of £15,000 to offset against their payment.
If the funds are not used to purchase apprenticeship training within a certain time scale the funds will not be returned to the business.
How will the levy be collected?
The first Apprenticeship Levy PAYE return will be due in April 2017. It will be applied at a rate of 0.5% of the annual pay bill, and will be collected monthly by HMRC through the PAYE system.
To keep the process as simple as possible, “paybill” will be based on total employee earnings subject to Class 1 secondary NICs. You can find more information on HMRC’s guidance page here. You can also estimate how much your organisation will spend on apprenticeships using this calculator.
What is the aim of the levy?
With the government committed to achieving 3 million apprenticeships by 2020, the levy is designed to encourage employers to take on apprentices, and maximise their return on their investment.
The Apprenticeship Levy will also aim to raise £3billion a year to increase the quality of apprenticeships, addressing the skills gaps in the UK workforce while raising the profile of apprenticeships to the same level as university courses.
How will it work in practice?
The government will create the Digital Apprenticeship Service – an online portal to which all organisations will have access, regardless of whether they will pay levy contributions or not. However, it is expected that use of the Digital Apprenticeship Service to select and pay for apprenticeship training will initially be made available only to employers with a wage bill of over £3m per year.
Non-levy payers will not have access to The Digital Apprenticeship Service to pay for apprenticeship training until at least the year 2018. Instead, they will pay their chosen training provider directly, who will then draw down appropriate co-investment from the government.
How will this affect training for apprentices?
Employers will be able to spend their levy funds on training apprentices on either new apprenticeship standards or existing apprenticeship frameworks. This can be for either existing staff or new recruits, as long as the training meets an approved standard, and the individual is eligible for the chosen apprenticeship.
Employers that pay the levy will have the choice to be involved in developing apprenticeship standards that meet the needs of their business. By 2020, all apprenticeship frameworks will be replaced by new apprenticeship standards, designed by employers, for employers.
As of the August 2016 update, employers will also now be able to use their levy funds to train current workers with new skills, even if they already have prior qualifications. This will give employers the freedom to make training decisions that will benefit them and the individual, so long as the new qualification is vastly different from their previous ones.
In the interim, employers are able to choose whether their employees undertake existing frameworks, or new standards if they are available for delivery. The full list of newly available apprenticeship standards is available here.
How will this affect smaller businesses?
Companies will a pay bill of less than £3m will not be in scope to pay the Apprenticeship Levy. However, from April 2017 the way apprenticeship are funded is changing, as non-levy paying employers will have to make a mandatory cash contribution of 10% to train the apprentice, and the government will ‘co-invest’ by paying the remaining 90 percent.
Organisations with less than 50 employees who will take on an apprentice aged between 16 and 18 years old will not be required to make any financial contribution towards their cost of training. The business will also receive a £1,000 cash incentive for taking on the apprentice, with an additional £1,000 payment to the training provider.