The Apprenticeship Levy
The Apprenticeship Levy – what does it mean to you?
The Apprenticeship levy is a new tax which comes into effect in April 2017 and aims to fund three million new Apprenticeships in England by 2020. From April 2017, all employers with a wage bill of £3m or over will have a 0.5% ‘Levy’ taken from any portion of their wage bill over £3m, through the PAYE system. The money will be put into a ‘Levy pot’ which can be used by the company to deliver apprenticeships.
The Apprenticeship levy is part of the government’s plan to increase the quantity and quality of Apprenticeships. The levy is a new tax which aims to fund three million new Apprenticeships in England by 2020.
The levy will come into effect in April 2017. Employers included in the levy should have their first levy payment taken then. Apprenticeships, funded by the levy, will begin on 01 May 2017.
Any UK employers who have a total employee wage bill above £3m a year will pay the levy. This includes public and private sector, charities and educational providers such as academy groups and universities. The levy rate is 0.5% of your wage.
Your ‘wage bill’ is your total employee earnings subject to Class 1 secondary NICs.
Employers get a £15,000 fixed annual allowance to offset against the levy payment. Employers who operate multiple payrolls will only be able to claim one allowance for the levy.
An example: if you have a £3m pay bill, you’d have a levy bill of £15,000 (at 0.5% of employer pay bill). The allowance is offset against this so your levy payment is £0.00.
Here are some examples of how much employers may pay for the levy;
Employer A: 1,000 employees, each with a gross salary of £20,000
Annual pay bill: 1,000 x £20,000 = £20,000,000
Levy applied: 0.5% x £20,000,000 = £100,000
After allowance applied: £100,000-£15,000 means £85,000 levy payment
Employer B: 500 employees, each with a gross salary of £20,000
Annual pay bill: 500 x £20,000 = £10,000,000
Levy applied: 0.5% x £10,000,000 = £50,000
After allowance applied: £50,000 – £15,000 means £35,000 levy payment
Employer C: 100 employees, each with a gross salary of £20,000
Annual pay bill: 100 x £20,000 = £2,000,000
Levy applied: 0.5% x £2,000,000 = £10,000
After allowance applied: £10,000 – £15,000 means £0 levy payment
There will be the same time limits, penalties and appeal procedures as for income tax.
The money will be collected by HMRC and for Apprenticeship training in England will be accessed via a new Digital Apprenticeship Service (DAS) account.
You will be able to use this to pay for apprentice training. On your DAS account you’ll be able to see training provider or providers you want to deliver the training, chose appropriate Apprenticeship training courses and find candidates for your programmes. You will be able to register for your DAS account from January 2017.
In England, you’ll need to register your details online, along with the details of your apprentice. You’ll be able to see how much can be drawn down for each apprentice in the form of the voucher. You can then use these vouchers to spend on training with registered training organisations, of which Riverside Training is one, from late May 2017.
Details are yet to be confirmed about access to levy funds outside England.
You will not be able to spend an unlimited amount of money on a single apprentice. Funding caps will limit the amount of levy funds you can spend on training for an individual apprentice. The cap will vary according to the level and type of Apprenticeship. For example, more expensive, higher quality training is likely to have a higher cap. We would be happy to advise on the costs of the various apprenticeship programmes.
You can spend your levy funds on apprentice training for either existing staff or new recruits as long as the training meets an approved standard or framework and the individual meets the apprentice eligibility criteria.
A range of Apprenticeship training programmes can be funded. They must be provided to an approved Apprenticeship standard. See the Government’s full list of Apprenticeship standards at the link here.
Funds can only be used towards the costs of Apprenticeship training. They cannot be used on other associated costs such as apprentice wages, travel and subsidiary costs or the costs of setting up an Apprenticeship programme.
When an apprenticeship has started, monthly payments will be automatically taken from your digital account and sent to the training provider. This spreads the cost over the lifetime of the apprenticeship. You will see funds entering your digital account each month as you pay the levy, and funds leaving the account regularly each month as you pay for training.
You can buy-in from a provider or deliver the training yourselves, but the training must be delivered by an approved provider. If you want to “DIY”, your organisation needs to register as an approved provider and will be subject to Skills Funding Agency (SFA) quality arrangements and Ofsted inspection.
In the first year of the levy, you will only be able to pay for apprenticeship training of your own employees. The government is still assessing the options of some employers directing levy funds to other organisations however it is likely that from 2018 onwards an organisation will be able to allocate up to 10% of its levy to other organisations within its supply chain or within its group.
Employers in England who pay the levy will get a 10% top up to their digital accounts from the government. This means every £1 will be increased to £1.10
Funds will expire 2 years after they enter your digital account unless you spend them on apprenticeship training. Money is spent when it leaves your digital account as a payment to a training provider.
There are two circumstances where levy-paying employers are likely to have to contribute more:
- Where the cost of the training you wish to buy is greater than the funding cap for a particular standard or framework
- Where your organisation has spent all your levy contribution and top-up and wants to spend more on Apprenticeship training.
The levy will be UK wide, so contributions are based on the pay bill for all UK employees. Ahead of the levy’s implementation, the Government will work with the Devolved Administrations to ensure it works simply and fairly for employers wherever they are in the UK.
For your operations in England, the government plan to use data about the home address of your employees to work out what proportion of your pay bill is paid to employees living in England. This assessment will be made in early 2017.
In England, you’ll be able to access the new online Digital Apprenticeship System (DAS).
In the other nations we don’t know yet. In Scotland, Wales and Northern Ireland, the devolved administrations will decide how the money is spent. Confirmation on this is expected later in 2016.
Apprenticeships which start before 1st May 2017 will continue to be funded for their full duration under the current model. Apprenticeship funding is provided through the Skills Finding Agency (SFA), and the size of the contribution varies depending on the sector and the age of the apprentice.
Funding is available for public and private sector employers. The training contribution is paid to the organisation which trains the apprentice. If you are a small business, this will be a training provider. Large employers with a direct training contract can receive training funding themselves or appoint a training provider to deliver training on their behalf.
We believe these are the key milestones:
- December 2016. Final detailed funding and eligibility rules expected. Also further guidance on how to calculate and pay the Levy
- April 2017. Employers affected will begin making Levy payments on a monthly basis.
- May 2017. Employers expected to be able to draw down vouchers and use Levy payments by end of this month
You will be able to register to create your DAS account from January 2017 and levy-paying employers will be able to use the system from April 2017.
If your organisation has a pay bill less than £3m it will not have to pay the Levy. In England, organisations will still be able to access government support for Apprenticeships through the National Apprenticeship Service. However unlike the current system, where there is no charge for the delivery of apprenticeships, organisations who are not levy payers will be expected to pay 10% of the cost of the course to the training provider.