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April’s apprenticeship levy - are you ready?

  • United Kingdom
  • Employment law
  • Diversified industrials

05-04-2017

UK employers with a pay bill exceeding £3 million will be subject to the levy. This applies to all such employers, regardless of their engagement (or otherwise) in apprenticeship schemes or of their location within the UK. It is estimated that the levy will apply to some 2% of UK employers.

Levy, what levy?

A levy of 0.5% of the pay bill of applicable larger employers will be collected through PAYE alongside income tax and NI. 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 monthly. An allowance of £15,000 will be available to offset against payment of the levy (and, in some cases, will operate to reduce the pay bill below the threshold at which the levy applies). For companies in a group, only one allowance of £15,000 will be available and it will be for the companies themselves to decide how this is apportioned.

In preparation, employers will need to ensure they have already declared any levy liability to HMRC, and have adjusted their PAYE systems appropriately.

A straightforward example of levy contribution provided by BEIS is as follows: an employer of 250 employees, each with a gross salary of £20,000

Pay bill = £5,000,000 (250 x £20,000)

Levy sum at 0.5% = £25,000 (0.5% x £5,000)

Allowance to be deducted = £15,000

Total annual levy payment = £10,000

When?

The levy will apply from April 2017 and will be accessible to employers from May 2017. The levy will not affect the funding for apprentices commencing before 1 May 2017, and those funding arrangements will continue to apply for the duration of those apprenticeships.

Access to the funds

The objective of the levy is to support apprenticeship training for all employers committed to training. The funding it generates will be accessible for accredited apprenticeship courses, whether in the form of an apprenticeship standard or framework (the latter of which are being phased out, gradually). The cost of training towards an apprenticeship is also capped according to government scales, referred to as “funding tariffs”.

  • Levy-payers: In England, employers will be able to manage their levy funds and expenditure via a new digital apprenticeship service (DAS). For those employers, the proportion of levy contributions payable into DAS will be based upon the percentage of staff resident in England. Contributors to DAS will also receive a government “top up” of 10% of the levy funds they pay in. Funds will need to be used within 24 months or they will expire. To access funding, employers in England will need to register the desired apprenticeship course with DAS, following which they will receive confirmation of available funding and be issued with vouchers to spend with the applicable registered training provider.

    Employers based elsewhere in the UK will not have access to DAS but will be able to access funds through whatever arrangements apply in their region currently. The voucher scheme will also not apply in these regions, although the devolved governments are reviewing options, including the terms of funding-allocation and access for levy-payers to their respective contributions.
  • Non-levy-payers: A vital aspect of the levy is that it provides additional funding for apprenticeships in general. Since not all employers who pay the levy will make use of their contributions to support apprenticeships, or make use of them in full, this will leave a surplus which will boost government coffers for the benefit of other employers.

Employers who are not subject to the levy will have access to financial support from government for up to 90% of their apprenticeship costs, bearing approximately 10% of the costs themselves. A shortfall in funds on the part of levy-payers will also largely be met by government (provided the training falls within the funding tariff.

For an overview of the application of the levy, see our flowchart here

For more information on apprenticeships generally, including advice on ensuring apprenticeship agreements are legally compliant, and the enhanced protection that young workers enjoy, see our HR briefing here

For more information contact

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