The introduction of the Apprenticeship Levy
The long-awaited Apprenticeship Levy for UK employers came into effect from 6 April 2017. It’s designed to significantly increase the number of apprenticeships in the UK and is an obligation on all qualifying UK employers to fund new apprenticeships from May 2017, writes Mark Stevens.
Few seem to fully understand what it is, how it will operate and what effect it will have on businesses.
The levy is charged at a rate of 0.5% of an employer’s pay bill and will only be paid on annual pay bills in excess of £3m. In reality, this affects less than 2% of UK employers. The levy will be collected by HMRC through PAYE, alongside income tax and National Insurance Contributions.
If a company has a payroll of £3m, they will pay £15,000 in levy payments throughout the year which will gradually appear in their digital apprenticeship account. They will also gain an additional £1,500 (or 10%) from the government for the same period. Therefore, the company will have £16,500 in their digital account to pay for apprenticeship training and assessment.
However, one aspect of the levy proposals will see each employer receive an annual allowance of £15,000 to offset against their levy payment. The levy allowance is spread evenly throughout the year, so that the amount offset against each monthly levy liability is one-twelfth of the total allowance for the year to which the employer is entitled. Any unused allowance from one month is carried forward to offset against subsequent months.
Companies which qualify to pay the levy will need to consider the impact that it may have on their business, including any changes that need to be made to the payroll system; dealing with associated payroll administration; seeking advice on financial (re-)modelling and potentially mitigating the impact of the new costs incurred.
The government has announced that any unused levy funds will be used to fund apprenticeship training for small and medium sized businesses, which do not reach the threshold to pay the levy in the first place.
Non-levy paying businesses with over 50 employees, or businesses that have used up their levy pot, will have to make a contribution of 10% towards the cost of apprenticeships. The remaining 90% will be paid for by the government. Smaller businesses will not have to make a contribution for apprentices up to the age of 23. For all employers who take on apprentices between the ages of 16 -18, they will receive a £1,000 bonus payment from the government. However, it is also worth noting that the levy can be used to fund apprenticeships for new or existing employees of any age or position, as long as there is a genuine need for training.Employed adults can undertake apprenticeship training - they do not need to be in entry-level job roles and they can continue to be employed on their existing terms and conditions.
In light of these upcoming changes, therefore, it is important that businesses consider their strategy for dealing with the new levy. Although it may focus primarily on lower-level staff, it should also reach up to include leadership and management programmes and in some cases might also include professional pathways.
* Mark Stevens is a solicitor at Veale Wasbrough Vizards.
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