A Guide to the Apprenticeship Levy
Posted 30th November 2016
The Apprenticeship Levy is a new government initiative announced in the 2015 Summer Budget that will come into force from April 2017.It is in effect a payroll tax that will apply to large organisations – this includes small organisations that are part of a larger organisation such as a local authority or a Multi-Academy Trust (MAT). ** Update ** The Department for Education has produced guidance for schools - click here
What is the Apprenticeship Levy?The government is introducing the Apprenticeship Levy to replace all taxpayer funding of apprenticeships for companies of all sizes, at a rate of 0.5% of an employer’s wage bill.
Who will need to pay the Apprenticeship Levy?All employers receive an offset allowance of £15,000, equivalent to 0.5% on a payroll of £3 million. Any employer with a payroll above this will be liable to pay the levy.
What is the payroll bill?The payroll bill is based on total employee earnings subject to class 1 secondary NICs – this is not the same as employee earnings subject to tax. The school’s payroll provider will be able to provide further guidance if needed. The levy will be collected through the employer’s Pay As You Earn (PAYE) and will be payable alongside income tax and National Insurance.
What if the payroll bill varies each month?There will be cases where an employer’s pay bill varies throughout the tax year. However, the liability to pay the levy arises each month. Employers with a variable pay bill, which over the tax year is less than £3 million, may still have to pay some levy in some months.
What about agency staff?If you use agency workers directly employed by a recruitment agency, these workers’ pay does not count towards your pay bill and you will not pay the levy on their pay.
How will connected companies be charged?Where companies or schools are connected, only one £15,000 allowance can be shared between them. The division of the allowance must be decided at the beginning of the tax year. So if during the year an employer becomes connected to a company which already pays the levy, the first employer would immediately become liable to pay on their full payroll.
The Local Authority administers our payroll - how will we be affected?We are aware that some Academies and Voluntary Aided Schools (who are the employers) use the Local Authority as their payroll provider; and as a result they may not have there own HMRC payroll reference number seperate to the Local Authority. The current advice is that such organisations with a paybill over £3million will need to set up their own HMRC payroll reference. Organisations using the Local Authority with a paybill under £3million do not need a seperate HMRC reference number, and it will be the responsibility of the Local Authority to find a way of excluding these schools from the Authority's liability. We believe that similar procedures are already in existance, as many of these same schools will be eligible for the small business national insurance rebate / employment allowance, which is not available to the Authority. If you have any doubts talk to your payroll provider.
We are a maintained school but do not use the Local Authority for our payroll - what about us?As a maintained school the payroll bill will count towards the Local Authority's liability. The school will need to liase with both the Local Authority and its payroll provider to ensure that the correct amount of levy is calculated and paid to HMRC. The Local Authority is not allowed to topslice school budgets it delegates to schools to account for the levy.
How can employers benefit from the levy?Once employers in England have registered and paid the levy, they will then be able to access funding through a digital apprenticeship service account. Initially, the 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. Businesses will have 24 months to spend their funds (vouchers) before they expire.
When can companies start using the vouchers?The new funding system will come into effect on 1 May 2017. Apprenticeships that are started before the 1 May 2017 will continue to be funded under the current model for their entire length.
What can the vouchers spent on?The vouchers can be used by the employer to spend on training with a registered training provider. How much an employer can draw down from the levy will be dependent on the standard or framework the apprentice is starting on. The funding tariffs for new standards will be set by the government upon the advice of a new industry-led body known as the Institute for Apprenticeships.
Who can spend the vouchers?Vouchers can be used across a company group, i.e. across connected companies such as a local authority or MAT. The digital account system will enable group companies to pool the vouchers and then spend them throughout the group.
Can the vouchers only be spent on new staff?No. Apprenticeship training can be offered to existing staff members in a number of ways; for example:
- Offering a level 3 apprenticeship in the same subject to someone who already holds a level 2 qualification in that subject (such as business administration).
- Offering a level 2 apprenticeship in a new subject (such as business administration) to someone with a level 3 or level 2 qualification (e.g. in childcare).