As announced in the Summer 2015 budget, those companies with an annual UK pay bill of over £3m will be obliged to pay the government’s new apprenticeship levy. The levy is a key element of the government’s plan to fund three million new Apprenticeships in England by 2020.
The levy is due to come into force from 6 April 2017 and it will be mandatory and require employers to invest in apprenticeships. The size of such investment will be calculated in relation to the size of the company’s UK payroll bill.
How will levy contributions be calculated?
The levy will be required to be paid by all employers with a gross annual pay bill of more than £3m. A company’s levy contribution will be paid against the total gross bill at a rate of 0.5 per cent, minus an annual levy allowance of £15,000 to offset against this. In addition to the amount payable by the employer, the Government will apply a 10 per cent ‘top up’. Therefore, for every £1 paid in to the fund, the employer will have £1.10 to spend.
Levy payment will be collected by HMRC through the PAYE system. Employers will have to calculate, report and pay the levy to HMRC through the PAYE process, alongside any tax and NICs. Each month, the employer will have to inform HMRC whether it needs to pay the apprenticeship levy and if so, include it within the usual PAYE payment.
Example:
A company with an annual pay bill of £10m and will be obliged to contribute an annual levy payment of £35,000. This contribution is calculated as follows:
- Annual gross pay bill of £10,000,000
- Apprenticeship levy calculated at 0.5% of £10,000,000 = £50,000
- Less the £15,000 apprenticeship levy allowance = £35,000 annual payment
What will happen to the money once the levy has been paid?
Once an employer in England has registered and paid the levy, it will then be able to access apprenticeship funding through a digital apprenticeship service account. The account will allow employers to effectively “reclaim” their levy contributions as digital vouchers, which can then be used to select and pay for Government approved training providers, post apprenticeship vacancies and to search for candidates. Companies will have up to 24 months to spend the vouchers, after which any unspent funds in the digital account will expire.
As apprenticeships are a devolved responsibility, Scotland, Wales and Northern Ireland have their own, separate arrangements in place.
What can the levy fund be spent on?
The levy contributions can only be used for Government approved apprenticeships, which includes both the new approved standards and Trailblazer Apprenticeships. The levy fund must be spent on training and assessment with a recognised and registered apprenticeship training provider, those training providers with an inadequate Ofsted rating will not feature on the approved register.
Unless an organisation becomes its own training provider and draws down the funds, employers will also be unable to use the levy for internal training. In order to become a training provider, the company would be subject to the appropriate inspections and would need to officially register as a training organisation.
Digital funds and government funding cannot be used for:
- apprentice wages or expenses;
- trainee or workplace programmes;
- the costs of setting up an Apprentice programme.
Opportunities for smaller companies
Employers with a pay bill of less than £3m will not have to pay the levy, but will be able to benefit from the fund. When the new funding system begins, non-levy payers will be able to choose an approved training and assessment provider. In a scheme known as ‘co-investment’, the company will only be expected to contribute 10% of the cost of training, with the government paying the remaining 90%. For now, SMEs will pay the training provider directly and will not need to use the digital apprenticeship service account until at least 2018.
What next?
Given the mandatory nature of the levy, employers with a £3m+pay bill will need to ensure that their business is in a position to benefit from its own contributions. Rather than be disadvantaged by levy payments, companies should begin to consider either introducing apprenticeships or developing current programmes in order to recover the monies they have been required to pay in.
If you would like any further information, please contact the Employment Department on 0207 955 0880.
This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice, please contact the Employment Department as above.
