The Apprenticeship Levy
Your questions answered
The Levy was announced by the Chancellor in the Summer 2015 Budget and as of April 2017 the way in which the Government funds apprenticeships will change. Certain employers will be required to contribute to the Levy.
WHEN AND HOW WILL THE LEVY COME INTO FORCE?
The Levy was introduced under the Finance Act 2016 and is payable by employers through PAYE, alongside income tax and national insurance contributions (“NICs”) with effect from 6 April 2017. Draft regulations (the “Regulations”) for the payment, collection and recovery of the Levy have been published. When in force, the Regulations will amend income tax regulation.
WHEN WILL THE REGULATIONS BE FINALISED?
The Regulations were open to consultation in autumn 2016. Some amendments have been made to the Regulations and the Government opened a second consultation on the Regulations on 14 December 2016. This consultation closed on 3 February 2017 and the Government is currently analysing the feedback. We will be able to provide more information in relation to any proposed changes to the Regulations as a result of the consultation in due course.
WHO IS RESPONSIBLE FOR THE LEVY?
The Levy shall be payable by persons who are liable for employers NICs (specifically, secondary class 1 NICs) in a tax year. The Levy will also be payable by public authorities and intermediaries contracting to supply workers to them, on deemed employment income payments.
WHAT WILL THE COST BE?
The term “Pay Bill” has been introduced under the Regulations. The annual Pay Bill is all payments to employees that are subject to employer class 1 secondary NICs such as wages, bonuses and commissions.
The rate of the Levy will be 0.5% of the annual Pay Bill for a tax year, less an annual allowance of £15,000 (the “Annual Allowance”). The Levy is 0.5% of Pay Bills over £3million in the relevant tax year.
If you have more than one payroll reference, you may apportion the Annual Allowance between them, but employers should note that rules will exist in relation to connected persons. Therefore, employers who operate multiple payrolls will only receive one Annual Allowance. Additionally, the Levy allowance is spread evenly over the year, so that the amount that may be offset against each monthly Levy liability is one twelfth of the total allowance for the year to which the employer is entitled. Any unused allowance from one month may be carried forward and offset in subsequent months.
Setting aside the technicalities above, what this means in real terms for employers is that the Levy will only be payable on Pay Bills in excess of £3 million per year. The Government anticipates that less than 2% of employers will be liable to pay the Levy.
CAN WE RECOVER THE COST?
No. An employer is not permitted to recover the Levy charge from payments made to a worker.
HOW DO WE PAY THE LEVY?
The responsibility of paying the Levy lies with the employer. The Regulations will set out the exact method of calculation, the information to be included if you are an employer whose Pay Bill exceeds over £3 million in the preceding tax year, or is expected to exceed £3 million in a tax year commencing on or after 6 April 2017, and how they must notify HMRC of the amount of liability to the levy. If you are a Real Time Information employer (which require you to make more regular submissions), you must submit an apprenticeship levy return, including the levy amount within 14 days of the end of the tax month.
HOW DO EMPLOYERS USE THE LEVY?
If you are an employer who will benefit from the Levy, you will be able to draw down on funding to pay for qualifying training and end point assessments. Employers can now register to set up an Apprenticeship Service Account (the “ASA”) ahead of April 2017. The ASA will now allow employers to review their Levy balance and pay their training providers for the provision of training and assessments. Unlike the restriction upon connected persons only receiving one annual allowance, employers which are part of connected companies who have more than one PAYE scheme and/or are in a group of connected companies can create multiple ASA accounts. Alternatively, there is an option to pool accounts together and hold only one ASA account.
Funds within the ASA will be accessed by the Skills Funding Agency (the “SFA”). Before the SFA can access the funds within the account, to pay training providers that employers have agreements in place with, employers will need to sign an agreement with the SFA to authorise the access of funds and management of the funds.
The agreement reiterates to employers that money within the ASA does not belong to the employer, but is a tax that belongs to the Government. If the SFA suspects or knows that the employer is not complying with the terms of the agreement, the SFA has a right to recover any funding which has been paid out from the ASA.
ARE THERE ANY RESTRICTIONS ON SPENDING THE LEVY?
Funding for approved apprenticeship training can be spent on any apprentice who is expected to be present in the UK for the majority of (50% or more) of their working time during the apprenticeship.
WILL THERE BE ANY OTHER TYPES OF FUNDING ASIDES FROM THE LEVY?
Yes. The Government will be implementing funding incentives by way of additional payments and these will be available to both employers and training providers. The Government will be using the additional payments to incentivise certain apprenticeships and employer types. One example of funding incentive is £1,000 for training a 16 to 18 year olds.
WHAT CAN EMPLOYERS DO?
The Levy has the potential to add to the annual wage bill of some employers. Yet, it may provide employers with an opportunity to transform how they structure and recruit their workforce. To effectively manage the change, employers should consider reviewing their approach to recruitment and workforce strategy. Additionally, employers should ensure they have reviewed their payroll and HR systems in advance of April 2017 to support reporting levy, making payments and aiding the identification apprenticeships accurately.
Employers should also consider forming relationships with their desired training provider of choice to help identify and fulfil their training needs.
As stated above, the Government is currently reviewing responses to the consultation opened on 14 December 2016. Therefore, the Regulations may be altered in light of the responses. In this interim period, employers can use online tools created by the Government to estimate if they will pay the Levy, how much they will have available to spend on apprenticeships and how much the government will contribute towards the cost of training.
The Chancellor will be announcing the Spring Budget on Wednesday 8 March 2017. This may well include further announcements in relation to the Levy, in light of the Government reiterating its commitment to increasing the quality and quantity of apprenticeships in the Autumn Statement 2016.
If you would like more information on the topics discussed in this article, then please contact a member of our employment team on 0345 070 6000.