The Apprenticeship Levy Is Coming – What Is It And What Does It Mean?

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The Apprenticeship Levy, In A Nutshell

In short, the introduction of the Apprenticeship Levy has the primary purpose of funding new apprenticeships. The levy will apply to all employers in the UK that have a yearly pay bill of £3 million or more, or are connected to other companies and/or charities which, as a whole, have an annual pay bill of £3 million or more.

For further clarification, the annual pay bill mentioned above refers to all payments to employees that are subject to employer Class 1 secondary National Insurance contributions (NICs) which include wages, bonuses and commissions. It also includes all payments to all employees that are earning under the Lower Earnings Limit as well as the Secondary Threshold, employees below 21 years of age as well as apprentices below 25 years of age.

In England, the control of apprenticeship funding will be given to employers through something called the Digital Apprenticeship Service. The Apprenticeship Levy will be charged at a rate of 0.5 percent of an employer’s pay bill. Further, each relevant company will be given an allowance by the government of £15,000 which will be offset against the company’s levy payment.

The Apprenticeship Levy is set to be introduced in April 2017, however, payments are set to start in May 2017. It will be up to employers to accurately notify HMRC each month as to whether they are eligible to pay. Payments will be made via the PAYE process in the same way Income Tax or National Insurance contributions are paid.

What Happens Next For Employers

Once employers have registered online and paid the apprenticeship levy they will then be able to access funding through their digital apprenticeship service account.

The account will let them select and pay government approved training providers and post apprenticeship vacancies.

For the meantime, this service will only be open to companies paying the levy but the greater plan is to eventually give all companies access to the digital apprenticeship service account.

As well as the amount paid into the account, the government will apply a 10% top up on funds. This essentially means that for every £5.00 paid in, the company actually gets £5.50 to spend. Companies will have 2 years to spend their funds. After that period they will expire.

How Have Employers Reacted So Far?

A recent study by The Institute For Employment Research and IFF Research, which was commissioned by the Department for Business, Innovation and Skills found that there were, so far, mixed reactions to the levy among employers. Responses were generally split three ways;

  • No big reaction – This lack of a strong reaction, either negative or positive, was most common among employers from industries that have long been training and employing apprentices (e.g. construction and engineering industries) and so already had a clear idea of how apprentices affect their business.
  • Opportunity – A large proportion of employers surveyed saw the introduction of the levy as a real opportunity to ramp up training and employment of apprentices. This view was most prevalent among employers that already use alternatives that are somewhat similar to apprentices so see the levy as an opportunity as opposed to a hindrance.
  • Cost – A smaller proportion of employers surveyed saw the introduction of the apprenticeship levy primarily as a cost to their bottom line. Of these employers, some accepted the levy payment as a sunk cost and others saw it as a cost to be offset against their broader training budget.

Overall, there was also an overarching feeling of uncertainty among the employers surveyed, understandably, as a large proportion of them have not trained and/or employed many, if any, apprentices before.

Additionally, a survey conducted by The British Chamber Of Commerce found that 40 percent of the respondents have “no understanding, or have not heard of the levy”, and just over 50 percent do not actually “understand how the funding reforms work”.

This highlights the critical need for the government to raise awareness of the levy among relevant employers as well as to more clearly and effectively communicate the real-world changes it will have.

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