Apprenticeship Levy Ð Employment Tax Or New Way To Fund Your Businesses Training Needs?

Issue 23

When the new Apprenticeship Levy was announced back in 2015 many employers grumbled that this was a tax by another name. There was also concern about smaller employers being disadvantaged under the new scheme. Whatever your views, the new scheme is now with us and by May 2017 most affected employers will have paid their first payment under the Apprenticeship Levy.

By way of reminder; the levy applies from 6 April 2017 and is payable alongside monthly payments of PAYE and Class 1 NIC at a rate of 0.5 per cent of the employerÕs pay bill. An annual allowance of £15,000 is available which means that employers only have to pay the levy when their annual pay bill is greater than £3 million per annum.

Many employers with smaller pay bills will however still pay the levy because of the connected employerÕs rules and it is important to understand, at the outset, how these work in order to avoid underpayments and potential penalties for non-compliance. Where employers are connected only one allowance is available which must be split between them. The definition of connected for this purpose is the same as that for the purpose of the Employment Allowance. Companies will be connected if one has control of the other or if both are under the control of the same person(s). Connected companies can choose how to share the allowance between them. It is important to ensure that the allowance is not over claimed but equally important to ensure that a system is in place to identify group companies and how the allowance can best be utilised across the group.

Employers can access funding for apprenticeships through the new Digital Apprenticeship Service (DAS), to pay for training and assessment of apprentices in England (separate arrangements are in place in Scotland, Wales and Northern Ireland). Funds are available a few days after payment into the account and will be topped up by a 10 per cent contribution from the government. The funding can only be used on apprenticeship training by an approved training provider, must last for at least 12 months and the apprentice must spend at least 20 per cent of their time on off the job training.

What about employers that do not offer apprenticeship training? As the levy is payable regardless employers do need to consider carefully how they provide their staff training in future as funds will be lost if they are not used within 24 months. There may even be employers who are such large contributors that they are unable to use all their funds. In those scenarios the levy is indeed simply another form of taxation on employers. But almost all employers will have some training requirements and it makes sense to service these requirements through the DAS where possible, if the employer is paying the levy.

Smaller employers with pay bills under £3 million will not pay the levy so how will they fund

their apprenticeships following the introduction of the scheme? Although not required to use the DAS, they can use it if they wish to source training from approved suppliers. Such employers will have to make a 10 per cent contribution to the training costs with the government paying the rest up to the maximum funding available for that apprenticeship. This is a major change for those employers whose schemes were previously fully funded. It is hoped that such employers will not be put off from using apprenticeships in the future as this may lead to a poorly trained workforce that in turn could be detrimental to the future potential of that business.

What is clear is that all employers need to plan for the costs of the new levy or the additional costs of apprenticeships, and to maximise the benefits of the scheme.

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