…the Levy & Funding
From 6 April 2017, a new charge will apply to some employers – the Apprenticeship Levy. Although many employers will not pay the Levy, there will be significant changes to taxpayer funding of apprenticeships for all employers. The changes are being introduced as the government wants to encourage the creation of three million apprenticeships in England by 2020.
Who will pay the levy?
In principle, employers will only pay the Levy if their annual ‘pay bill’ is over £3 million. A pay bill means the total earnings upon which Class 1 employer National Insurance contributions are calculated. The Levy won’t be charged; therefore, on other payments to employees such as benefits in kind.
The Levy is 0.5% of the pay bill, but there is an annual allowance of £15,000.
Calculations of any Levy liability will need to be reported within 14 days of the end of each tax month. The liability will be due by the 22nd following the tax month if paying electronically. The Levy is therefore reported and paid in a similar manner as PAYE.
However; there will only be a need to report on the Levy by an employer if the employer:
- had a pay bill of £3 million in the previous tax year, or
- considers that the pay bill will be over £3 million in the current tax year.
So most employers will not only have no liability to pay the Levy, there will also be no reporting requirements.
As might be expected, there are rules about connected employers, for example, companies in the same group. Connected employers cannot have more than £15,000 allowance between them. The allowance can be split between connected employers in any ratio they choose.
The example at the foot of the page shows how the monthly calculations are made.
How will apprenticeships be funded?
The government has issued the policy for the funding of apprenticeships in England. Employers in other parts of the UK will be paying the Levy but each devolved government will be drawing up their own plans for the use of their share of the Levy.
The funding policy will be implemented in May 2017 and will be reviewed from time to time. The funding policy has been adapted from initial proposals in response to feedback from interested parties.
Any apprenticeships started from 1 May 2017 will be funded under the new policy. This will apply to all employers including those who do not pay the Levy. There will, however, be different rules depending upon whether an employer has paid the Levy.
Funding for employers who have paid the Levy
Key points are:
- An employer will have a digital account to fund the cost of training apprentices. The level of funding will be the monthly Levy paid to HMRC multiplied by the proportion of the employer’s pay bill paid to their workforce living in England. There will be a 10% government top up of this amount.
- Employers have 24 months in which to use the funds in the digital account.
- The funds can pay for apprenticeship training and assessment with an approved provider.
- All existing apprenticeship frameworks and standards have been placed in one of 15 funding bands, with the upper limit of those bands ranging from £1,500 to £27,000. The upper limit of each funding band caps the maximum amount of digital funds an employer who pays the levy can use towards an individual apprenticeship.
- Employers can negotiate the best price for the training they require from a training provider, which can be below the maximum set by the funding band. If the employer wants to spend more than the upper limit of the funding band, they can do so but at their own cost.
- An employer who wishes to invest more in training than they have available in their digital accounts will benefit from further government funding (see ‘co-investment’ below).
Funding for employers who are not required to pay the Levy and co-investment
Key points are:
- Employers who are not required to pay the Levy or who wish to invest more in training than they have available in their digital accounts will get government funding through ‘co-investment’.
- Co-investment means that government funding will meet 90% of the training costs and the employer 10%. The government funding only applies to amounts up to the funding band limit for any particular apprenticeship.
Special funding for younger apprentices
There are additional measures focused on apprentices aged 16-18 on an apprenticeship framework or standard and apprentices aged 19-24 who have previously been in care or have a Local Authority Education, Health and Care plan.
Where employers take on these types of apprentices, employers will receive £1,000 for each apprentice in two instalments
Employers with fewer than 50 people working for them will have the benefit of the £1,000 and will be excepted from the need to pay 10% of the training costs of the qualifying apprenticeships. So the government will pay all the training costs up to the funding band maximum.
Training providers will also receive additional funding for these apprentices.
Where to get further information
The primary legislation for the Apprenticeship Levy has been enacted in Finance Act 2016. Regulations for the calculation, payment and reporting of the Levy are currently in draft.
A document issued by the Department of Education in October sets out the policy for apprenticeship funding.
Further information on the Levy and apprenticeship funding can be found at https://www.gov.uk/government/publications/apprenticeship-levy-how-it-will-work/apprenticeship-levy-how-it-will-work
Should you consider taking on apprentices?
The government has stated that the Levy will allow the government to double its investment in apprenticeships by 2020 from 2010 levels. Apprentices can be new or current employees, aged 16 or over and combine working with studying for a work-based qualification. Employers can find that the development of an apprenticeship scheme can help develop their workforce.
The government funding described in this letter does not, of course, pay the salary of an apprentice. However, from April 2016 the government introduced a 0% rate of NICs for employers of apprentices. This rate applies to the earnings of under 25 year-old apprentices up to £827 per week for the current tax year.
Some government information on taking on an apprentice can be found at www.gov.uk/take-on-an-apprentice
Please contact us if you require any further information or advice.
Telephone: 01509 267827
Apprenticeship Levy – example of calculation
An employer, X Ltd had an annual pay bill for 2016/17 of in excess of £3 million. X Ltd therefore has a reporting requirement in respect of the Apprenticeship Levy.
The pay bill does however fluctuate from month to month.
In the month ended 5 May 2017, the pay bill is £200,000. The annual allowance of £15,000 is divided into 12 monthly instalments by the Levy legislation of £1,250 each.
0.5% of £200,000 is £1,000. As this is less than £1,250, there is no Levy to pay for the month (although there will be a reporting requirement by 19th May 2017). The balance of the allowance not used (£250) is effectively carried forward.
In month ended 5 June 2017, the pay bill is £320,000.
0.5% of £320,000 is £1,600. The cumulative allowance is £1,500 (£1,250 and £250 brought forward). There is £100 Levy to pay for the month.
Under RTI the figures are reported on a cumulative basis so for June the cumulative levy is £2,600 (being 0.5% of May and June’s pay bills of £200,000 and £320,000) less the cumulative levy allowance of £2,500 (£15,000 x 2/12 as two months into the tax year).
The calculations follow on similar lines for the rest of the 2017/18 tax year.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Neither Essex Abel Ltd nor the author accept any responsibility whatsoever for any action taken based upon the information included in this article.