The new Apprenticeship Levy
5 April 2017
The Apprenticeship Levy, introduced by sections 98 to 121 of the Finance Act 2016, comes into force on 6 April 2017. It requires UK employers to fund new apprenticeships across the UK, assisting the Government to meet its target of three million new apprenticeships by 2020.
The levy is being introduced alongside a number of reforms to apprenticeships in the UK, including a new industry-led Institute for Apprenticeships and statutory apprenticeship targets for large public sector bodies (2.3% of headcount, averaged over the next four years).
The rate of the Apprenticeship Levy is 0.5% of an employer’s total pay bill (meaning employee earnings subject to employer Class 1 secondary National Insurance Contributions (NICs)), less an annual allowance of £15,000. Subsequently, the pay bill of a stand-alone company must exceed £3m for the levy to take effect, as 0.5% of any pay bill below £3m will be absorbed by the annual allowance.
However, it is important to note that ‘connected’ employers (essentially group companies) will only be entitled to one annual allowance, to be allocated between the group in whatever proportions it deems appropriate at the start of the tax year. This means that group companies with annual pay bills of less than £3m may still be liable to pay the Apprenticeship Levy, if the combined pay bill of the group is over £3m and the annual allowance does not cover their liability.
Foreign-owned businesses operating subsidiaries in the UK, with employees subject to UK NICs legislation, may be caught if their total annual pay bill exceeds £3m.
The levy is payable monthly, through the employer’s Pay As You Earn (PAYE) scheme. The first payment will be due in May 2017, based on their April payroll. Employers with an annual pay bill of more than £3m are required to report the amount of their monthly levy liability to HMRC.
Employers based in England (but not other parts of the UK) will be able to register for the new Digital Apprenticeship Service (DAS) to obtain digital vouchers to spend on apprenticeship training with a registered training provider. The vouchers will be calculated according to the proportion of the levy paid in respect of employees resident in England. The Government will add a further 10% to the amount paid into the digital account per month. Funds in the digital account will expire after 24 months if they are not used.
Businesses that engage apprentices but are not caught by the requirement to pay the levy will have to co-invest in apprenticeship training, which must be with an approved provider. The Government will fund 90% of the cost up to the maximum funding available for the specific apprenticeship, with 10% funded by the employer.
The content of this article is for general information only. For further information on the Apprenticeship Levy, please contact Liz Stevens or a member of Birketts’ Employment Law Team. Law covered as at April 2017.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at April 2017.