Apprenticeship Levy: How does the levy impact your business?
In the 2015 Autumn Statement, Chancellor George Osborne outlined a few significant changes to the way apprenticeships will be funded in England. This is because the government needs to meet pledges made in the Conservative manifesto on increasing the number of apprenticeships.
The most important change that businesses need to be aware of is a levy on all employers with a UK PAYE in excess of £3 million per annum, even if they don’t employ apprentices. But how exactly will this levy impact your business?
Facts and figures concerning the apprenticeship levy
The government hopes to raise £3 billion annually over the next five years by supplementing current funding to apprenticeship training with employer contributions.
However, the government stresses that the levy will put the control of funding into the hands of employers with the aim of encouraging more businesses to invest in apprenticeships and take on more individuals.
The key facts and figures concerning the levy are:
- From 5th April 2017, employers with a paybill over £3 million will be charged a levy of 0.5 per cent. This applies to your full UK payroll bill, not just the amount over the threshold, and is based on total employee earnings subject to Class 1 secondary NICs.
- The levy will be payable through Pay As You Earn (PAYE) alongside income tax and National Insurance on a monthly basis. Changes to your paybill each month will be reflected in the amount of levy taken.
- Even though the levy is based on your full UK paybill, you will only be able to spend your English proportion on English apprenticeship training.
- Levy payments will be ring-fenced in the form of an electronic voucher, which from the end of May 2017 can be used to purchase apprenticeship training from recognised providers. Unused vouchers will expire after 18 months.
- All employees with paybills over £3 million must pay the levy, regardless of whether they reclaim voucher funds to purchase apprenticeship training or not.
How will the levy affect businesses offering apprenticeships?
The government says that businesses committed to apprenticeship training can get more out than they pay in, as it will apply a 10 per cent top-up to all monthly funds.
What’s more, the levy can be claimed back and spent on apprenticeship training for all employees at all levels and ages. This includes graduates eligible for Level 6 or 7 apprenticeship programmes and any existing employee development as long as it meets the criteria.
However, it is estimated that 3-5 per cent of an employer’s workforce will need to be apprentices to utilise the levy. Some employers may also find that the funds in their digital account aren’t enough to cover the full cost of their apprenticeship training and assessment. But while the government says it will help meet the additional costs, employers must also make another contribution, which is payable over the lifetime of the assisted apprenticeship.
It is also important to note that apprenticeships are a devolved policy, which means authorities across the UK will manage their own programmes, including how funding gets spent. The digital apprenticeship service will support the English apprenticeship system, while the HMRC is on hand to minimise the burden of implementing changes for employers and providers of payroll services.