From spring 2017, the government will change the way Apprenticeships are funded by introducing a new scheme known as the Apprenticeship Levy. However, this levy has been met by confusion and concern by employers on how this scheme will take place.
We are here to explain how the Apprenticeship Levy will work in practice and how it can benefit your business.
1. What is the Apprenticeship Levy
2. Why is the Apprenticeship Levy being introduced?
3. When will the Levy come into effect?
4. Will my company have to pay the Apprenticeship Levy?
5. What defines a pay roll
6. How would my company pay the Apprenticeship Levy?
7. What is the £15,000 allowance and how does it work?
8. My company is a group of connected companies. How will this be effected by the Levy?
9. I’m paying the Levy. What advantages will it bring towards my company?
10. I don’t need to pay the Apprenticeship Levy; will I have to contribute any costs?
11. I am looking to take on an Apprentice before April 2017 – Will I still need to contribute towards training?
12. Can I use the Levy to train my existing staff??
13. What’s next?
The Apprenticeship Levy will require all employers operating in the UK, with a pay bill over £3 million each year, to make an investment in Apprenticeships (0.5% of their annual pay bill).
The aim of the Apprenticeship Levy is to improve the quality and quantity of Apprenticeships in England and so it can meet the government target of 3 million Apprenticeships by 2020. An additional major facet of the Levy is providing a sustainable workforce and bridge the skills gap affecting many industries including tech.
In April 2017
The levy will be paid 0.5% from an employer’s pay bill. However, since each employer will receive a £15,000 offset allowance every tax year, it is likely that a majority of companies will not need to pay anything at all.
For example, a company with a payroll of £3 million would pay nil, this is because 0.5% x £3 million = £15,000.
Example 1: an employer who would pay the levy
An employer with an annual pay bill of £5,000,000:
levy sum: 0.5% x £5,000,000 = £25,000
subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment
Example 2: an employer who would not have to pay the levy
An employer with an annual pay bill of £2,000,000:
levy sum: 0.5% x £2,000,000 = £10,000
subtracting levy allowance: £10,000 – £15,000 = £0 annual levy payment
You can calculate how much your company will have to pay with our easy levy calculator
Disclaimer This tool is designed to be illustrative only. The actual amount of levy you will pay may vary, for example, this tool may underestimate the amount of levy you will pay and therefore receive if your organisation is part of a group. Just IT is not responsible for the consequences of any decisions or actions taken in reliance on the information provided by this tool.
A payroll is defined on total employee earnings subject to class 1 secondary NICs. Earnings include any remuneration or profit coming from employment, such as wages, bonuses, commissions, and pension contributions that you pay NICs on.
Additional detailed guidance can be found here:
If you have to pay the Apprenticeship Levy, you will calculate, report and pay on a monthly basis to the HMRC, through the PAYE process alongside tax and NICs.
The £15,000 levy allowance is divided monthly so you will only pay for a given month if your liability is less than £1,250. Any unused allocation money will carry over towards the next month.
For example, if your company only used £1000 of your levy allocation money in month A, alongside not paying the levy for that month, your allowance would also be £1,500 for month B.
When a group of companies are connected, they will only be able to use one £15,000 levy allowance. However, this allowance can be split towards all businesses in the group but this must be decided and notified to HMRC before the start of the tax year, it cannot also be changed for the rest of the tax year.
Any company paying the levy will gain access to the new digital account system, which will enable you to pay for training and assessment for Apprentices in England, provided as a voucher system. You will also be able to search for training providers like Just IT to help deliver your Apprenticeship programme. You can register with this service from January 2017.
However, digital funds and government funding cannot be used for:
Your company will have up to 24 months to spend these vouchers or they will otherwise expire and cannot be used again.
Non-levy paying employers will still have to make a small contribution towards training an Apprentice. There is a proposal that the government will pay 90% towards the cost of training and employers will pay the remaining 10%. This proposal will be confirmed at the end of the year.
Any Businesses with under 50 employees won’t need to pay for anything taking on a 16-18 year -old Apprentice, with the government contributing 100% towards the total cost of training.
Whilst you may need to pay the Apprenticeship Levy when it is introduced in April 2017, any Apprenticeships taken before this time will still continue to be funded under the current Apprenticeship model. However, this also means that vouchers used from the digital account system cannot be used for current Apprentices.
Your Internal Workforce Development Program can be funded through the Apprenticeship Levy, provided the employee will be learning new skills/knowledge, the Apprenticeship is relevant to their role and is the most appropriate way towards progressing their career.
Whilst the Apprenticeship Levy is looking extremely likely to go ahead, the full eligibility rules for funding is yet to be defined but likely to be published by the end of the year.
At Just IT we would like to help your business take advantage of the Apprenticeship Levy and alleviate any concerns you may have.
If you’re looking to get ahead of the government policy, or if you’re interested in taking on an enthusiastic young adult, then please get in touch to our Employer Relationship Team on 020 7426 9835.