What is the apprenticeship levy?
The apprenticeship levy is part of the government’s plan to increase apprenticeships and is aimed at funding new apprenticeships across the UK, including three million new apprenticeships in England by 2020. The government’s aim is that the new levy should help to improve both the quantity and the quality of apprenticeships and will come in to effect in April 2017.
Who will need to pay the levy?
All UK employers that have a total employee pay bill above £3m a year will be required to pay the levy. This will apply to all public and private sector organisations, charities and educational providers such as academy groups and universities. The levy will be charged at a rate of 0.5 per cent of an employer’s annual pay bill and the employer (together with its connected entities) will have a levy allowance of £15,000 per year to offset against the levy they must pay. This means employers will only pay the levy if their pay bill exceeds £3m in a given year. The employer will pay the levy to HMRC through the pay as you earn (PAYE) process.
How much of the apprenticeship levy will you pay?
Here are some examples of how much employers may pay for the levy:
Employer A has an annual pay bill of £10,000,000
Levy applied: 0.5 per cent x £10,000,000 = £50,000
Less allowance: £50,000 – £15,000 = £35,000 levy payment
Employer B has an annual pay bill of £1,800,000
Levy applied: 0.5 per cent x £1,800,000 = £9,000
Less allowance: £9,000 – £9,000 (restricted) = no levy payment
How can employers utilise what they pay into the apprenticeship levy?
Employers in England will be able to reclaim their apprenticeship levy contributions as digital vouchers to pay approved providers for training apprentices. Different systems will apply in Scotland, Wales and Northern Ireland.
The government has recently announced that unspent funds in an employer’s digital account will expire after 24 months, rather than 18 months, as was initially proposed. So, for example, funds entering the account in May 2017 will expire in April 2019 unless the employer uses them by that time.
The digital account works on a ‘first-in, first out’ basis, so payments automatically draw from the funds which entered the account first.
Employers that pay the apprenticeship levy in England will also receive a 10 per cent top-up from the government to their total monthly contributions. So for every £1 an employer pays in, they can draw down £1.10 to spend on apprenticeship training through their digital account.
Connected employers can pool their funds into a single digital account to pay for apprenticeship training.
The government is continuing to make amendments to the proposals and recently announced the following changes:
- an extra 20 per cent of funding to train 16- to 18-year-olds;
- more money for employers to train apprentices in the poorest parts of England;
- more money for employers who take on apprentices under 24 years old who are in care or who have special educational needs; and,
- as mentioned above, 24 months for businesses to spend the funds.
We anticipate further announcements both in the Autumn Statement and also in December.
For more information please get in touch with Graham Farquhar, or your usual RSM contact.