The government is changing how UK apprenticeships are funded. If your pay bill exceeds £3million, you can expect to contribute towards the training of apprentices. Every UK employer will need to be aware of the Apprenticeship Levy, whether you pay for it or not.
From 6 April 2017, employers will automatically be liable for the government’s latest initiative: the Apprenticeship Levy. The aim of the levy is to help fund three million places for apprentices and streamline the cost associated with training. Furthermore, the levy will give businesses and organisations the opportunity to access both government and contributed funds through a digital account that can be used to train apprentices from May 2017 onwards.
Who does it apply to?
Employers with a pay bill of over £3million a year. These employers will be required to contribute 0.5% of their annual wage bill to the training of all apprentices. However, even if you do not contribute to the levy, every eligible UK employer will be able to contact HM Revenue and Customs (HMRC) for access to the Digital Apprenticeship Service, where they can access funding and training schemes.
How will it work?
Every employer in the UK will be entitled to an allowance of £15,000, which will be payable monthly through PAYE (Pay-As-You-Earn). If you have an annual wage bill of over £3million, you can offset the allowance against your levy.
For example, if you employ 500 employees all earning £10,000, your total wage bill would be £5million. If you then apply the 0.5% levy, the levy you would be required to pay would be £25,000. However, you would then be able to claim the £15,000 allowance, which means your actual levy payment would be £10,000.
It should be noted that the levy will work on a monthly basis of £1,250. This means that for those who have unusual payment patterns, they can offset their allowance to the next month.
For example, as per the above example, if the employer only needed £1000 of the allowance in one month, they can transfer the remaining £250 to month two.
What if I do not pay the levy?
Those who do not pay the levy will not need to use the service to pay for training and assessment till 2018. At this point employers can choose the training they would like their apprentices to receive; the government will then pick up the majority of the cost, but the employer will be asked to make a contribution. Everyone will be allocated a funding band to see how much they will get from the government. Although this is currently being confirmed, the provisional maximum amount that can be claimed from the government is 90% of the training bill.
What if I already pay a levy?
Even if you already contribute to a levy system or have entered into a training arrangement, you will still be required to pay the Apprenticeship Levy.
The Digital Apprentice Service
Upon declaring your eligibility to HMRC, you gain access to the Digital Apprenticeship Service where you will be able to access and pay for training providers. The government will make the service available to all employers, even those who do not contribute towards the levy.
Furthermore, an automatic ‘top-up’ of 10% will be applied to your digital account from the government each month. You will also be able to top up your digital account online. It is important to note that funds from your digital account will expire every 18 months.
Connected Companies and Charities
For companies or groups with connected employees, your annual levy allowance will still remain at £15,000 for the year. At the start of the tax year, you will need to declare what proportion of your allowance should go to which group for that entire tax year. The employer of that group will then have to calculate what proportion will be paid to HMRC. The same concept will apply to charities.
What should you do now?
Before the changes come into force we advise that you audit your business to see whether you will be required to pay the levy and if so what the amount will be. You will then need to establish whether you will have the financial means to pay the levy. Planning in advance will help to mitigate the impact of the levy when it is introduced, it also allows you to see if any changes can be made to your contracts or operating model to reduce your liability.
For more advice or help planning for the levy, please contact Lee Manning at firstname.lastname@example.org.
Further consultation is to be released in October 2016 and December 2016. To find out more Information, please go to Gov.uk.