Are you prepared for the new apprenticeship levy? We’ve gathered together the key points you need to know.
What is it and when does it come into force?
The government are introducing an apprenticeship levy which requires all employers operating in the UK, with a pay bill of more than £3 million each year, to make an investment in apprenticeships. This will be introduced in April 2017. The resulting funding will be made available to support the development of apprenticeships.
The government’s declared aim is to increase the quality and quantity of apprenticeships and to achieve 3 million apprenticeship starts by 2020. (You can read the full document or the Executive Summary, published by the Department for Business, Innovation and Skills, here. This document relates to England, as this is a devolved policy and so far details of how the funding will be used have only been published regarding England.)
Even if you don’t have to pay the levy, the new plans are likely to change the way you advertise apprenticeship vacancies, choose training providers and select apprenticeship standards.
Who will pay and how much?
If you’re an employer in the UK with a total pay bill in excess of £3 million, you’ll be required to pay an annual levy of 0.5% of your annual pay bill. You’ll then have a levy allowance of £15,000 per year to offset against the levy you must pay, which might mean you have nothing to pay. Here are the examples which HMRC provide to show how it works:
Example 1: an employer who would pay the levy
An employer with an annual pay bill of £5,000,000:
- levy sum: 0.5% x £5,000,000 = £25,000
- subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment
Example 2: an employer who would not have to pay the levy
An employer with an annual pay bill of £2,000,000:
- levy sum: 0.5% x £2,000,000 = £10,000
- subtracting levy allowance: £10,000 – £15,000 = £0 annual levy payment
And it’s worth noting that the requirement extends to any connected companies, or charities, with smaller pay bills. If you think this might apply to you, you should probably start checking on the status of all the companies involved and get all the liabilities clear in advance. As for the allowance, where a group of employers are connected they will only be able to use one £15,000 allowance.
You may already be part of a levy system, or other collective training arrangements. But be aware that, even if you already contribute to one of these, you’ll still need to pay the apprenticeship levy.
How will payments be made?
The apprenticeship levy will be paid to HM Revenue and Customs (HMRC) through the Pay as You Earn (PAYE) process. The levy allowance will operate on a monthly basis and will accumulate throughout the year. Any unused allowance will be carried from one month to the next. And be aware of your tax allowances – any apprenticeship levy payment to HMRC will be allowable for Corporation Tax.
How will you then access the available funding?
(This relates to England – as mentioned above, this is a devolved policy and so far only England has published details of how the funding will be made available.)
Once you have paid the apprenticeship levy to HMRC, you can access funding for apprenticeships through a new Digital Apprenticeship Service Account. You can use this to pay for training and assessment for apprentices (in England). The service will also help you find training providers to help you in developing and delivering your apprenticeship programme.
You’ll be able to register and create your account from January 2017 and then levy-paying employers will be able to use the service to pay for the training and assessment of apprentices from April 2017.
HMRC will calculate how much you’ll have to spend, based on the levy you’ve paid, and funds will appear each month in your digital account. The good news is that HMRC will also apply a 10% top-up to the funds you have for spending on apprenticeship training so for every £1 that enters your digital account you’ll actually get £1.10.
Don’t forget to spend it! Funds will expire 18 months after they enter your digital account unless you spend them on apprenticeship training.
What else will the Digital Apprenticeship Service Account do?
Whether you pay the levy or not, the digital apprenticeship service will help you to:
- select an apprenticeship framework or standard
- choose the training provider or providers you want to deliver the training
- choose an assessment organisation
- post apprenticeship vacancies
From April 2017, if you pay the levy you’ll also be able to:
- see the funds you have available to spend in England
- set the price you’ve agreed with your training provider
- pay for apprenticeship training and assessment through the digital apprenticeship service
By 2020, all employers will be able to use the digital apprenticeship service to pay for training and assessment for apprenticeships.
Can you direct funds to other employers?
You may want to direct funds to another employer, for example someone in your supply chain. This is still under consideration – see Gov.UK for the latest updates, along with information on pooling funds with other employers in a group structure, and details of how the levy applies for Apprenticeship Training Agencies.
If you don’t have to pay…
If you don’t pay the apprenticeship levy, you’ll still need to use the digital apprenticeship service to pay for apprenticeship training and assessment but this won’t be until at least 2018.
What do you need to do now?
- You can start now on the calculations to see how this will affect your business. Make sure you include your corporation tax relief and a potential overall reduction in your training costs through the funding you’ll receive.
- Make sure your payroll data is up to date so you’re ready to access the levy funds for qualifying employee training.
- Make sure your HR and payroll staff are fully informed and prepared.
- And you may want to think about expanding your current apprenticeship schemes, or even possibly converting roles into apprenticeships.
And if you need some advice, get in touch. We can help you plan ahead and, if there are opportunities here to reduce your costs and increase your gains, we’ll help you find them.