What is the levy?
From 6 April 2017, all employers with an annual pay bill over £3 million will be required to pay a levy of 0.5% of their pay bill towards funding apprenticeships. This is part of the government's drive to create an additional 3 million apprenticeships by 2020, raise £3 billion per year and change the way that apprenticeships are funded.
Which types of business are affected?
The short answer is that all businesses will be affected if they have a wage bill over £3 million. Whilst less than 2% of employers are likely to meet this threshold according to HMRC, once this is triggered the levy will be applied indiscriminately across private and public sector businesses, regardless of whether they employ apprentices. The blanket levy rate of 0.5% will apply to all employers, even those already paying into an existing industry levy scheme.
How will it work in practice?
HMRC will publish guidance on how to calculate and pay the levy in December 2016 but the information we have so far indicates that the levy will be paid to HMRC on a monthly basis via the PAYE process, alongside tax and NICs. A corresponding amount will be then credited to the employer's digital apprenticeship service account (a newly created government account to record such funds) and the government will apply a 10% top-up directly into the account. These funds can then be used to pay for apprenticeship training and end point assessments from approved training providers in England (different regimes will apply to Scotland, Wales and Northern Ireland). All apprenticeships will be placed within specific funding bands and the digital apprenticeship service account funds can be used to pay for training up to the maximum permitted in the relevant band. Any shortfall will have to be funded by the employer.
Employers will receive an annual allowance of £15,000 to offset against the levy. This will accrue on a monthly basis but, depending on the size of your business, this may not represent a large reduction to the overall bill – particularly if your business is part of a larger group of "connected" companies between which the allowance must be shared. Companies are "connected" if one of them has control of the other(s) or if the companies are under the control of the same person or persons.
Use it or lose it
The funds in the digital service account will expire if they are not used within 18 months. Draft rules setting out how funds can be used will be published in October 2016 but it seems clear that the funding can only be spent on apprenticeship training rather than wider training programmes and current guidance specifically excludes wages, travel and subsidiary costs, traineeships, work placement programmes and the cost of setting up an apprenticeship programme. When George Osborne unveiled the levy last year, the former chancellor said those paying it would “get out more than they put in” but this only rings true for companies which employ and train apprentices as other types of training will not be funded by the scheme.
What you can be doing now
- Calculate the likely cost of the levy for your business – talk to your payroll provider and/or use the government online tool
- Consider ways to maximise how your business will benefit from the levy – do current apprenticeship and training programmes meet the criteria for funding? If not, do you want to take steps to create such programmes so that the levy can be routed back into the growth and development of your business?
- For groups of companies, consider how best to utilise the £15,000 allowance as you will need to decide what proportion each employer is entitled to at the beginning of the tax year
- Put January 2017 in your diaries to register your company's digital apprenticeship service account so that you can link this to your PAYE system and familiarise yourself with the system before the levy is introduced
Remember the additional workforce cost when undertaking due diligence inthe context of any proposed mergers, acquisitions or expansion.
This article is part of our Employment Law Update for September 2016