With the Apprenticeship Levy due for collection by HMRC from April 2017, you may be wondering what it will mean for your business. Announced in the government’s 2015 Autumn Statement, this surprise payroll tax is designed to help fund an increase in apprenticeship numbers and quality.
HMRC, the Department for Business, Innovation, and Skills, and the Skills Funding Agency will be releasing information as policy and implementation decisions are made between now and April 2017. Babington Group will keep you up to date throughout this process, and below is a breakdown of what we know so far:
Who will be affected by the levy?
The Apprenticeship Levy will be applied to all UK businesses in both private and public sectors. Only businesses with an annual wage bill of over £3 million pounds will have to make payments, which means less than 2% of employers across the UK will have to pay the levy.
These larger organisations will need to pay the levy, regardless of whether they reclaim their digital funds to buy apprenticeship training or not.
Every business who pays the levy will be entitled to an allowance of £15,000 to offset against their payment.
How will the levy be collected?
The first Apprenticeship Levy PAYE return will be due in April 2017. It will be applied at a flat rate of 0.5% of the annual paybill, and will be collected by HMRC through the PAYE system on a monthly basis.
To keep the process as simple as possible, “paybill” will be based on total employee earnings subject to Class 1 secondary NICs. Further information can be found in HMRC’s guidance page here.
Below are a couple of examples of how the levy will work:
Employer of 250 employees, each with a gross salary of £20,000
Paybill: 250 x £20,000 = £5,000,000
Gross Levy Due: 0.5% x £5,000,000 = £25,000
Application of Allowance: £25,000 – £15,000 = £10,000
Net Levy Due: £10,000
Employer of 100 employees, each with a gross salary of £20,000
Paybill: 100 x £20,000 = £2,000,000
Gross Levy Due: 0.5% x £2,000,000 = £10,000
Application of Allowance: £10,000 – £15,000 = £0
Net Levy Due: £0.
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, so that they are held in the same regard as university courses, and will address the skills gaps in the UK workforce.
How will the Apprenticeship Levy work?
Watch our webinar with levy expert Gareth Thomas to find out.
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.
Essentially, employers will be able to ‘shop’ for apprenticeships, and find accredited training providers, paying for them from their digital account. The government believes this will help to stimulate the market, and make the funding and selection of apprenticeship training and assessment easier to use, and simpler for employers to understand.
How will this affect training for apprentices?
Employers will be able to spend their levy funds on training apprentices on approved apprenticeship standards and frameworks. This can include 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 a strong involvement in which standards and frameworks are used, and will be put in the driving seat to create further apprenticeship standards that meet the needs of their business.
How will this affect smaller businesses?
Most companies – particularly SMEs – will not need to pay the Apprenticeship Levy. All employers who do not pay the levy will still receive government support for apprenticeships.
The government has not yet confirmed how these companies will be able to access apprentice training funding, or if larger firms will be able to fund training for companies in their supply chains via the Digital Apprenticeship System. If they can, the facility is not expected to be available in the first year of the levy.
What should employers do now?
It’s still early days, and we are awaiting further information about the levy, and what can and cannot be funded. However, a high level guide for employers is expected to be released this month. A draft version of the rules employers need to start developing detailed plans is not likely to be available until this summer, with the rules confirmed in the late autumn. As the details are finalised and questions are answered, we will be there to update you.
In the meantime, employers should develop experience of managing apprenticeship programmes whilst they are publicly funded to develop a better understanding of the benefits they can bring to your business. There is no better time to take on apprentices than now.