The Apprentice (Levy)08 Nov 2016
From 6 April 2017, employers across all sectors will be subject to a new Apprenticeship Levy. This forms part of the government’s plan to encourage more employers to take on and train apprentices, with HMRC expecting the levy to raise £3billion a year by 2020 which will be able to fund a predicted three million new apprentices.
Despite this, many employers are viewing the levy as an additional payroll tax, particularly those that operate in sectors in which apprenticeships are traditionally uncommon. These businesses believe they will be subsidising both sectors that rely heavily on apprentices, as well as smaller companies which will not have to pay the levy at all.
How much will I have to pay?
The levy rate will be 0.5% of the employer’s payroll which is subject to employer’s National Insurance Contributions (NICs). However, there is an annual allowance of £15,000, which means in practice only employers with payrolls greater than £3 million will pay the levy on any amount above that threshold value.
The annual allowance will be apportioned to give a monthly allowance of £1,250 to offset against the levy. It is proposed that any unused monthly allowance can be carried forward to the next month, and will continue to accumulate throughout the year. There are no proposals permitting the allowance to be carried over into subsequent tax years.
How do I pay the levy?
In order to keep things as simple as possible for employers, the levy will be payable monthly through the PAYE system along with income tax and NICs. This is, at least, a process employers will be familiar with, and it is hoped that this will make the process less of an administrative burden.
To deter companies from avoiding paying the levy, there are anti-avoidance provisions, which prevent two (or more) connected companies benefitting from their multiple allowances. Only one allowance is permitted and employers are free to choose which of the connected companies takes the benefit of the allowance.
‘Connected companies’ has the same meaning as in the NIC legislation, which states that companies are connected if one has control of the others, or are under control of the same person (or company). Employers may already be familiar with this concept, as it is the same anti-avoidance measures used for the Employment Allowance for NICs. Similar provisions will be in place for charities.
If, however, employers operate multiple PAYE schemes, any unused allowance can be transferred to another scheme within the same company.
What will I gain from paying the levy?
The government stresses that employers who have registered and paid the levy will get more out of the scheme than they put in if they choose to take advantage of it. The government proposes to top-up employers’ funds by 10%, so for every £1 paid by the employer, the government will add 10p to the employer’s apprenticeship funds (or “vouchers”), which will expire after two years if not spent.
Once registered, employers will be set up with a digital online account that they can access to view the value of their vouchers and how much is available for training. To benefit from the scheme, employers will have to arrange training with pre-approved registered training providers, and there will be online tools to help with this.
It is proposed that employers will be able to work with the relevant body to design new apprenticeship plans which must be robust in terms of quality and standards.
I’m a small business, can I benefit from the scheme?
It is estimated that only 2% of UK employers will be required to pay the levy. The remaining 98% of employers will not have access to digital accounts until around 2018. However, a new funding system will be in place in which the employer pays 10% of the cost of training and the government will pay the remaining 90% up to the maximum amount available for the particular apprenticeship. This is called ‘co-investment’.
What if I pay the levy but don’t have enough funds in my account?
The shortfall will be paid by the employer directly to the training provider, and a similar ‘co-investment’ arrangement to that described above will be in place.
The Apprenticeship Levy will apply to all businesses with a payroll over £3million. There will be penalties for business that do not pay the levy when they are liable to pay. Regardless of size, employers should consider whether or not an apprenticeship would be suitable for their business. The government is also making funds available for smaller business that are not required to pay the levy. In either case, can you afford not to leverage the levy?