The Apprenticeship Levy was announced in the Government November Spending Review. It is an additional payroll tax for employers, set at 0.5% of their annual pay bill and collected through PAYE.
The levy will affect all employers in the UK with an annual pay bill of more than £3 million. Groups of companies under a common ownership structure will be treated as one business.
The apprenticeship levy will be introduced on 1st April 2017.
Your pay bill will be based on the total amount of earnings subject to National Insurance Contributions. Any person who is on your payroll and paid through PAYE would be included in your pay bill. Earnings include any remuneration or profit coming from employment, such as pay, bonuses, commissions, and pension contributions that you pay National Insurance on.
While the levy is set at 0.5% of an employers gross annual pay bill. They will have an allowance of £15,000. So an employer with an annual pay bill of £5,000,000 will need to spend £10,000 on the levy:
Levy sum: 0.5% x £5,000,000 = £25,000
Subtracting levy allowance: £25,000 - £15,000 = £10,000 annual levy payment
You can use the Government's indicative online tool for employers to estimate your levy contribution, begin to plan your training requirements, and estimate your financial spending.
The levy allowance operates on a monthly basis and will accumulate throughout the year. This means you will have an allowance of £1,250 a month. Any unused allowance will be carried from one month to the next.
The total levy amount is collected monthly by HMRC, and the funding is then made available to employers via a digital account, through which they will be able to pay for training for apprentices. If an employer does not spend their entire levy amount on apprenticeships, then the unspent portion will be made available to other employers to spend on apprenticeships.
If you are part of a group of employers, you must decide what proportion of the levy allowance each employer in the group will be entitled to. This decision must be taken at the beginning of the tax year and will be fixed for that tax year. Each employer will then calculate what they have to pay through the same processes set out above, but using their portion of the £15,000 allowance.
Any apprenticeship levy payment to HMRC will be an allowable deduction for Corporation Tax purposes.
Your pay bill will be based on the total amount of earnings subject to National Insurance Contributions. Essentially, any person who is on your payroll and paid through PAYE would be included in your pay bill. Earnings include any remuneration or profit coming from employment, such as pay, bonuses, commissions, and pension contributions that you pay National Insurance on.
The Government will apply a 10% top up to your levy account for spending on apprenticeship training in England. They will apply the top up monthly, at the same time the funds enter your digital account. For every £1 that enters your digital account to spend on apprenticeship training, you will get £1.10. Funds (including top ups) will expire 24 months after they enter your digital account unless you spend them on apprenticeship training.
Funds in your digital account, can only be used towards the costs of apprenticeship training and spent with an approved training provider.
They cannot be used to pay for other costs associated with your apprentices or wider training effort e.g. pay, statutory licences to practise, travel and subsidiary costs, managerial costs, or the costs of establishing an apprenticeship programme. The Government is currently working on a plan with industry groups to ensure that from 2018 employers can transfer some of the funds in their digital account to other employers in their supply chains or sector.
Some employers paying the levy may find that the funds in their digital account are not enough to cover the full cost of training all the apprentices they want to employ. In order to support further apprenticeship delivery, the Government have said they will contribute 90% of the total costs of the additional delivery.
Every apprenticeship standard and framework is placed in a funding band, which will set the maximum amount of funding that can be used towards the training costs over the length of the apprenticeship.
If you do not pay the levy, the Government has indicated that you won’t need to use the digital apprenticeship service to pay for apprenticeship training and assessment until at least 2018. When the new funding system begins, you can choose the training you’d like your apprentices to receive and an approved training provider to deliver it, and a price is then agreed with that provider. The Government will make a contribution of 90% to the cost of this training.
Information correct at January 2016. Information subject to change at any time.
To find out more about apprenticeships and how you can benefit, speak to us.
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Hugh Baird College
Liverpool, L20 7EW