The Apprenticeship Levy: The Facts

It only applies to large employers; if this is your view then you would be wrong.

This new government scheme applies to all employers, the difference is if the size of your payroll bill is above £3m then you won’t actually contribute towards the scheme, but you can still benefit from it.

So what is it?

Let us first start with a little background.  The government had for many years worked with training providers, granting them funding, to help employers recruit apprentices.  The funding meant the employer contributed nothing or very little to the financial costs for training.  Unfortunately there were some providers who exploited the system and managed to provide enough funding for poor training and even some or all of the apprentice wages; this was never the government’s intention.  So a change was needed with the government outlining their main objectives as being fit and proper training provision to ensure the right skills would be achieved and to ensure the employer engaged with the apprentice’s journey.

An announcement in the 2015 Budget stated that a new tax levy would be applied to employers to help fund a new scheme.  The government were keen to ensure this didn’t put off the many small employers who were quite often responsible for taking on apprentices, where they might not have recruited otherwise. And so the levy was born, coming into force from April 2017!

The apprenticeship training scheme and registration differs across the UK with England being the first to offer registration online.  There are different grades of training funding available and so depends on the level of skill the employer requires.  More information on this can be found at https://www.gov.uk/take-on-an-apprentice

How does it work from a payroll perspective?

The employer needs to calculate their annual pay bill for which 0.5% levy will be charged; this applies to everyone so your payroll has to be able to do this.  However, the government have also provided for an annual allowance of £15,000, which means in reality only those employers with a pay bill of £3m or more will actually pay the levy and will fall under the reporting requirements to HMRC.  Where there can be confusion is when a company has other companies linked or as the legislation states are connected.  This could mean that although the total pay bill across them all doesn’t equate to £3m, a levy charge may be applied to one or more company.  You can share the allowance across schemes but only one £15k allowance on the levy can apply over all the connected companies; similar to the employment allowance rules.

An example provided by HMRC in their guidance where there are different PAYE schemes is below:

A single employer has a regular pay bill of £300,000 each month (£3.6 million for the tax year), but operates 2 PAYE schemes, with a pay bill of £3 million on one PAYE scheme and £600,000 on another PAYE scheme. The employer decides to use the full Apprenticeship Levy allowance of £15,000 against the PAYE scheme with the pay bill of £3 million. The result is the PAYE scheme utilising the levy allowance, does not have to pay any levy, but the PAYE scheme with the £600,000 pay bill will have a levy liability of £600,000 × 0.5% = £3,000.

Alternatively, a single employer that has a regular pay bill of £300,000 each month (£3.6 million for the tax year), but operates 2 PAYE schemes, with a pay bill of £150,000 on both PAYE schemes, may choose to share the £15,000 levy allowance equally between the 2 PAYE schemes, so both have a levy allowance of £7,500 for the year.

You should note that once you have decided on the split you cannot change this mid-tax year; this rule also applies to connected companies.

Although the allowance and levy is based on an annual figure,  employers must report and pay it each month.  Like PAYE, where a cumulative tax code is in operation, the levy and allowance accumulates each month.  Where the pay bill (£3m/12) exceeds the allowance then 0.5% of the pay bill that month over the allowance will be applied.  Of course if the annual pay bill doesn’t reach £3m this will eventually be refunded to the employer via the payroll where it happens before the end of the tax year.  If the employer is in credit at the end of the tax year, you cannot carry over into the new tax year; instead HMRC will credit the PAYE account as it would for any other over payments to them.

All the information is reported via the payroll Full Payment Summary (FPS) submission to HMRC on or before each pay day.  If you operate different pay frequencies on the same PAYE scheme these will need to be added together.

What is the pay bill based on?

The pay bill is all the earnings on which the employer is liable to pay Class 1 National Insurance, so excludes benefits in kind.  Please note it is liability, so even those employees under 21, or under 25yrs where no actual NI is paid, the employer is still liable to pay so these amounts are included.

The entire levy paid over will be shown (at some point) on the employer PAYE dashboard.

Finally

What is remarkable is that the government has reported a decrease in employers taking on apprentices; is this because they don’t want to, or perhaps they don’t understand this new scheme?  I will be shortly analysing part of the Armstrong Watson family business survey, which included a question around the understanding of the new apprenticeship scheme. I look forward to understanding whether the responses shed any light on this reduction in take-up.

In a press release (https://www.gov.uk/government/news/multimillion-pound-contracts-awarded-for-apprenticeship-training) in December 2017,  the Education and Skills Funding Agency (ESFA) shared it is awarding contracts to hundreds of organisations to provide apprenticeship training to non-levy paying employers; those who do not pay the apprenticeship levy because they have an annual pay bill of less than £3million.  They say that hundreds of training organisations across the country are being awarded contracts to provide apprenticeship training for learners and small businesses. This they say will ensure all businesses have a real choice of high quality apprenticeship training provision, no matter where they are in the country or what sector they operate in. It will also mean that more people of all ages and backgrounds will have the opportunity to get into skilled employment.

Employers looking to find an apprenticeship provider can do so through find apprenticeship training, which will be updated in early January available via https://findapprenticeshiptraining.sfa.bis.gov.uk/Apprenticeship/SearchResults?Keywords=Teacher this is still work in progress and will be updated during January.

So what are you waiting for; take advantage of this funding if you are considering taking on an apprentice, especially if you have to pay the levy!

If you'd like more information about how you can reap the benfits of this funding, get in touch with Karen at karen.thomson@armstrongwatson.co.uk

Contact Karen

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