The apprenticeship levy requires all employers operating in the UK, with an annual pay bill of over £3million, to pay a 0.5% levy on their monthly pay bill. It comes into effect from 6 April 2017 and will apply to both public and private UK employers across all sectors.
The levy was announced by the Government in July 2015, reformed to encourage employers to offer apprenticeships in order to meet their skills and workforce requirements via funded training.
Paying The Levy
The levy is an annual charge, although it is reported on and paid monthly. The bill is based on the employers’ pay bill which is the total amount of earnings subject to Class 1 secondary NICs, including all earnings below the secondary threshold.
If the pay bill exceeds £3million, the 0.5% levy is applied. The employer then deducts the £15,000 annual allowance against the levy liability. So for example, an employer with an annual pay bill of £20million will be required to make an annual levy contribution of £85,000, which will go into the employer’s digital account. Any Apprenticeship Levy payment to HMRC will be allowable for Corporation Tax.
Accessing The Funding
The levy is designed purely to encourage employers to support apprenticeships. Thereafter, a decision needs to be made by employers as to whether they would like to access funding.
Funding is available to:
- All employers who have contributed to the levy – these employers qualify for a 10% government top up on their levy payment. For illustration:
|Pay bill||Net payment||10% top up||Training amount|
Any funds not utilised within 24 months will expire.
- Employers who have not contributed (as their pay bill is below £3m) or employers who would like to invest more in training than they have available in their digital accounts – ‘Co-investment’. Co-investment requires the employer to fund 10% of the cost of the apprenticeship (up to the funding band limit) with the Government paying the remaining 90%. Any cost in excess of the funding band limit will need to be met in full by the employer.
- Employers with fewer than 50 employees, who will be able to access funding for 16-18 year olds without making a contribution towards the funding – ‘Small employer co-investment waiver’.
The funding operates on the basis of 15 bands. Band 1 has an upper funding limit of £1,500; band 15 has an upper funding limit of £27,000. Each HMRC approved apprenticeship slots into one of these bands, for example, the Apprenticeship Standard for a Paralegal falls into band 9 and therefore has an upper funding limit of £9,000. This means that when an employer is negotiating with a training provider on the cost of delivering the Paralegal apprenticeship to one of their employees, the maximum amount of their funding pot they will be able to utilise in respect of that employee’s apprenticeship training is £9,000. Any excess (if there is any) will need to be covered by the employer.
Is It This Straight Forward?
Sadly, no. There are various complexities to be wary of when it comes to the Apprenticeship Levy:
- Connected companies and connected charities must share a single levy allowance between the connected parties.
- The rules are more complicated for schools:
– For maintained schools, the local authority is the employer. Each local authority has an annual allowance of £15,000.
– For voluntary-aided schools, foundation schools and academies, the governing body is the employer. Each governing body will be entitled to an allowance of £15,000.
– Multi-academy trusts will get a single annual allowance of £15,000.
- There is a broad range of apprenticeships available covering many sectors including Healthcare (adult care, dental, plus others), Motor, Construction and Real Estate, Technology, Financial services, Hospitality, Legal, and Travel sectors, so finding apprenticeships suitable for your business requires detailed evaluation.
- The funding bands (the maximum amount of your training fund that you can use on a single apprenticeship) are somewhat onerous to understand.
What Should You Be Thinking About?
Do you know how much the levy is going to cost your business and have you budgeted for it? What is your current spend on training or apprenticeships and what opportunities do you have to mitigate further costs associated with the levy? How can you utilise apprentices to develop your workforce to meet the future strategic plans of the organization?
If you would like a consultation to discuss how the levy could impact your business, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Tax team.
This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.