EXECUTIVE REPORT
Attracting apprentices
The Apprenticeship Levy for UK employers came into effect from 6 April. Adam Bernstein suggests that few businesses fully understand what it is.
When the previous government was elected in 2015, it revealed ambitious targets to significantly increase the number of apprenticeships in the UK. The plan was that these would be funded in large part by employers and that, in turn, they would be able to access the new system. It then put forward more detailed proposals for a new levy on large employers, with the aim of supporting three million new apprenticeships for people over the age of 16 by 2020.
In essence, the levy is an obligation on all qualifying UK employers, in both the public and private sectors, to fund new apprenticeships from last May. Although skills training is a devolved policy issue in the UK, the levy will apply equally to employers in England, Northern Ireland, Wales and Scotland.
The aim is to encourage employers to invest in apprenticeship programmes and to raise additional funds to improve their quality and quantity. The levy paid by employers can then be accessed by those same employers to fund apprenticeships in their business. In England, control of funding will be put into the hands of employers through the Digital Apprenticeship Service (DAS), an on-line service.
Collecting the levy
The levy will be charged at 0.5% of an employer’s pay bill and only paid if this exceeds £3m. It will be collected by HMRC through PAYE. The pay bill will be calculated with reference to total employee earnings, not additional payments, such as benefits in kind, and will be payable by the employer on a monthly basis. It will be up to employers to notify HMRC each month as to whether they are eligible to pay.
When the money goes into the DAS, it gains a 10% top-up from the government. If a company has a payroll of £3m, they will pay £15,000 in levy payments throughout the year, which will gradually appear in their digital apprenticeship account, and they will also gain an additional £1,500 for the same period. Additionally, employers receive an annual allowance of £15,000 against their levy payment. If the employer has more than one payroll reference (say different businesses), it may apportion the allowance between them.
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The allowance is spread evenly throughout the year, so that the amount offset against each monthly levy liability is one-twelfth of the total annual allowance. Any unused allowance from one month is carried forward to offset against subsequent months. At the end of the tax year, the employer may reallocate any unused portion of the allowance for one payroll against the liability for another.
The Apprenticeship Levy should create funding for a wide range of training.
Those eligible to pay will need to consider the potential business impact, including changes to the payroll system and associated administration, seeking advice on financial modelling, and potentially mitigating new costs incurred. However, the government has said that any unused levy funds beyond the 24-month expiry date will be used to fund apprenticeship training for small and medium- sized businesses which are outside scope. It is estimated that the levy will raise approximately £2.5bn per year for training in England and that this will cover all employers
who take on apprentices, regardless of their size or business sector. This should mean that non-levy paying businesses will not miss out.
Non-levy paying businesses with over 50 employees, or businesses that have used up their levy pot, will have to make a contribution of 10% towards the cost of apprenticeships, the remaining 90% being paid by the government. Smaller businesses will not have to make a contribution for apprentices up to the age of 23. Employers taking on apprentices aged 16-18 will receive a £1,000 bonus payment, again from the government. However, the levy can be used to fund apprenticeships for new or existing employees of any age or position, as long as there is a genuine need, and trainees do not need to be in entry-level job roles.
Businesses should consider their strategy for dealing with the new levy. Although it may focus primarily on lower-level staff, it should also include leadership and management programmes, and could include professional training.
• • Industry discussion continues about the significance the
Apprenticeship Levy has in relation to the CITB Levy, and EHN will keep readers updated.
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