As you may have seen in the media recently, despite Brexit, the new apprenticeship levy (“Levy”) is still expected to come into force on 6 April 2017. It is hoped the introduction of the Levy will give employers more influence over how apprenticeships are designed and paid for. This article considers what the Levy is, how to work out which companies the Levy will apply to and considers what companies should be doing now to ensure they are prepared.
Currently the cost of apprenticeships is split between the employer (1/3) and the government (2/3). This method is soon to change with the implementation of the Levy which the government hopes by 2019/2020 will have raised £3billion to help pay for the increasing number of apprentices. It is important to note that the Levy can only be used for new apprentices. All apprentices who are under a programme before May 2017 will continue to be funded under the current funding system.
The Levy will require all companies operating in the UK, with an annual pay bill of over £3 million, to invest in apprenticeships and spend 0.5% of their total pay bill on the Levy. However, in addition to the introduction of the Levy the government are also introducing a levy allowance of £15,000 (“Levy Allowance”) to offset against the Levy payment. It is important to understand that if the company is part of a group of companies or is connected with any other company there will only be one £15,000 Levy Allowance available. Therefore companies will need to plan and decide at the beginning of each tax year how the Levy Allowance will be distributed between each company within the group during that year.
In practice companies will need to calculate if they have an annual pay bill of over £3 million. This will be calculated by totalling all the employees’ earnings which are subject to Class 1 NI contributions (for example: wages; bonuses; commissions; and pension contributions. It will not include benefits in kind). If the company has an annual pay bill of over £3 million it will need to spend 0.5% of its total pay bill on the Levy, minus £15,000.
Companies will need to start paying the Levy from 6 April 2017. Each month, the company will have to let HMRC know whether it needs to pay the Levy and include any Levy that needs to be paid in its usual PAYE payment to HMRC.
Once the Levy has been declared to HMRC the company will be able to access the funds that it has paid into the Levy via a new online portal called the Digital Apprenticeship Service (the “Portal”). The Portal will allow companies to find and select accredited training providers and assessment organisations, set the price that has been agreed with the training provider, pay for training and assessment and post apprenticeship vacancies.
The government will apply a 10% top-up to the funds that are available for spending on apprenticeship training through the Portal. This means for every £1 that enters the company’s Portal, the company will have £1.10 to spend. A company can only use the Levy to pay for accredited apprenticeship training, assessment and certification. The Levy cannot be used to pay for any other training, supervision costs or the apprentices’ wages. The government has however recognised that companies may need extra support if they are training certain categories of apprentice, such as those aged 16-18. In these cases, the government will make an additional payment of £1,000 to employers and make a further £1,000 payment to training providers to help with those additional costs. All the money in the Portal will be available for 24 months. If a company doesn’t spend the money within this time it will be lost.
If you have any questions in relation to the apprenticeship levy or how it may effect your business please do not hesitate to contact one of our team.