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The new apprenticeship levy - what you need to know

Tamsin Clark

The new ‘apprenticeship levy’ for businesses comes into effect on 6th April 2017. 

All employers with an employee pay bill of more than £3 million each year will be required to invest in apprenticeships, with the size of the investment dependent on the size of the business.  Qualifying businesses will have to make their first levy payment in May 2017.

Why is the levy being introduced?
The levy is being introduced as part of the government’s drive to train three million new apprentices by 2020 and to increase the focus on employee training outside the workplace. 

The money collected from the levy will be used to directly provide funding for apprenticeships through a new digital apprenticeship service account.

Who will have to pay the levy?
As an employer, you will have to pay the apprenticeship levy each month if you:
  • Have an annual pay bill of more than £3 million or,
  • Are connected to other companies or charities which have a total annual pay bill of more than £3 million
N.B. The definition of connected companies and charities is as set out under the Employment Allowance which rules that two companies are connected if ‘one of them has control of the other or if both are under the control of the same person or persons.’

Connected groups of employers can only use one £15,000 levy allowance. Where your company or charities is part of a connected group, you will need to decide what proportion of the levy allowance each employer in the group will be entitled to.  This decision must be made at the beginning of the tax year and will be fixed for the entire tax year.

How much will I need to pay?
Employers with an annual pay bill of more than £3 million will need to spend 0.5% of their total pay bill on the apprenticeship levy, minus the £15,000 annual levy allowance.  If your total pay bill is less than £3 million per year you do not need to pay the levy.

To work out how much you will pay you need to:
  • Calculate your total pay bill (this is made up of the total of your employees’ earnings including wages, bonuses, commissions and pension contributions.  Other payments to employees such as benefits in kind (company cars, health insurance, travel expenses and childcare) are not included in the calculation.)  
  • Work out what 0.5% of your total pay bill is
  • Subtract the £15,000 allowance
Total wage bill of £5,000,000
Levy sum: 0.5% x £5,0000,000 = £25,000
Subtract levy allowance: £25,000 - £15,000 = annual levy payment of £10,000
How will the apprenticeship levy be collected?
You will report and pay your levy to HMRC through the PAYE process along with Income Tax and National Insurance Contributions. 

Each month you will need to:
  • let HMRC know whether you need to pay the apprenticeship levy
  • include your levy payment in your usual PAYE payment to HMRC by the 19th day of the following month (or the 22nd if you report electronically.)
How will the levy be used?
Employers in England who have paid the levy will be able to access a new digital apprenticeship service account.  Here you will be able to reclaim your levy contributions as digital vouchers which can be used to pay for apprenticeship training and assessment with approved providers and to post apprenticeship vacancies.

The government will add a 10% top up on the funds, meaning that for every £1 paid in the employer gets £1.10 to spend on apprenticeships.  Businesses will have 24 months to spend their funds before they expire.

The levy will apply to employers across the UK; however the digital apprenticeship service will support only the English apprenticeship system.  (Scotland, Northern Ireland and Wales have their own arrangements).  For companies and charities with employees based in England AND other parts of the UK, employees’ home addresses will be used to work out what proportion of the pay bill is paid to employees living in England, and this proportion of the levy will be available to spend on apprenticeships for employees working in England.

My annual pay bill is less than £3 million. Can I still get support for apprenticeships?
Companies outside the apprenticeship levy will continue to have their apprenticeship training and assessment costs paid directly by the government however they must contribute 10% of funding towards the cost. 
Initially, the digital apprenticeship service will only be available to businesses paying the levy but the plan is to give all employers access to the digital account by 2020 to find and purchase apprenticeship training and assessments.

If you are unsure whether you will need to pay the levy or would like further help and advice, please contact your usual Moore adviser.