The new apprenticeship levy will be introduced in April 2017 to encourage and fund new apprenticeship starts.
What is the levy and will it apply to my business?
The levy is a new tax which will be charged to all public and private sector employers. It will be charged at a rate of 0.5% on an employer’s annual pay bill where this exceeds £3m.
Each employer will have an annual allowance of £15,000 so in practice the levy will only apply to employers with an annual pay bill in excess of £3million (£3million x 0.5% = £15,000).
If your annual pay bill is £5,000,000:
- levy sum: 0.5% x £5,000,000 = £25,000
- less levy allowance: £25,000 – £15,000 = £10,000 annual levy payment
If your annual pay bill is £2,000,000:
- levy sum: 0.5% x £2,000,000 = £10,000
- less levy allowance: £10,000 – £15,000 = £0 annual levy payment
What is included in the pay bill?
For the purpose of the levy, employer’s pay bills will be made up of all earnings subject to Class 1 secondary National Insurance Contributions. This means earnings, bonuses, commissions and pensions will be included, although items such as benefits in kind will be disregarded
How will the levy be collected?
The levy is a payroll tax so will be collected through the PAYE system and will be charged monthly In England employers will receive a credit to their online account, to fund apprenticeships in their business.
What can the levy payment be used for?
The levy can only be used for training apprentices through approved providers. It cannot be used to pay wages, licences to practice, travel, subsistence, managerial costs etc.
Levy paying employers
Employers in England will have a digital account, which the government will credit with funds to spend on apprenticeship training. Employers will receive a 10% uplift on funds deposited in the account so for every £1 paid in the account will be credited with £1.10. Levy funds must be spent within 18 months of being deposited to they will be lost. Funds can only be spent on apprenticeship training and assessment with approved providers.
The Digital Apprenticeship Service started to be rolled out from October 2016. This is a simple online portal enabling employers to select the most appropriate apprenticeships, choose a training provider and pay for apprenticeship training and assessment.
Employers in Scotland, Wales and Northern Ireland have their own apprentice authorities and the schemes there may work differently.
Non-levy paying employers
Where an employer’s annual pay bill is less than £3million no levy is payable. For these employers the Government will introduce a system of co-investment. The Government will pay 90% of the training costs directly to an approved provider with the employer required to pay the remaining 10%.
I employ apprentices, how will the levy benefit my business?
For those apprentices who have been accepted onto a training programme before the levy comes into force, funding will continue under the terms and conditions in place at the time. Funding of apprentices accepted post April 2017 will differ for levy paying employers and non – levy paying employers.
How will the levy affect group companies?
If a group of employers are connected they will only benefit from one annual allowance. Group companies must decide how they wish to share this allowance at the start of a tax year, although if any is unused, it can be offset against other PAYE liabilities at the end of the year. Group companies will be able to share one digital account.
In order to offset the cost of the levy to the business, it clearly makes sense to the funds available on increased use of apprentices, so now is the time to start planning how you can use this resource within your organisation.
To find out more read our earlier article on could apprenticeships work for you
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.