When it was first announced, the apprenticeship levy came under heavy fire from organisations representing British businesses. There were plenty of arguments against its introduction. The CBI warned that the levy would impose huge costs on employers with no improvement in training given. After a period of consultation and review, the scheme has been revised and agreed.
What this means is that your business could be affected by the apprenticeship levy from the date of its introduction. In this article, we’ll look at what it really means for your business, what you can do to be prepared for the scheme’s introduction, and where you can get more information.
The apprenticeship levy explained
From April next year, the government’s apprenticeship levy programme will be introduced in England. Separate plans will be put into place in Wales, Scotland, and Northern Ireland. At the time of writing this, those plans haven’t been agreed.
The apprenticeship levy is a scheme to promote apprenticeships by providing financial aid. It will be paid by a few businesses, but allows all to draw from it.
Here are the main points of the scheme:
- If your wage bill is higher than £3 million (and this includes all wages, bonuses, commissions, and pension contributions that are subject to Class 1 secondary NICs), you will be obliged to pay the apprenticeship levy.
- If your wage bill is less than £3 million, you won’t pay the levy but you can draw from it.
- Any payments into the scheme are effectively held for the benefit of the company paying in, but are lost if they haven’t been used within 24 months. At this time, the government will reclaim those funds.
- If your company has paid money in, that money can only be used to provide apprenticeship training.
How will the apprenticeship levy scheme help companies with their training?
If the money your company has paid into the scheme isn’t enough to pay for training your employees, the Government will co-invest with you to provide training.
The majority of companies won’t be paying an apprenticeship levy, but will be able to benefit from it. If you slot into this segment and want to provide apprenticeship training, the Government will help you with the cost of doing so. The deal is that you pay 10% and the Government pays 90% up to the maximum amount of government funding available for that apprenticeship.
How much apprenticeship levy will you have to pay?
The apprenticeship levy is 0.5% of your wage bill, with an allowance of £15,000. It’s this allowance that dictates the £3 million starting point for payment. If your wage bill over the year is £5 million, you’ll pay a total of £10,000.
|Company A||Company B|
|Company A’s wage bill is £5,000,000 per annum|
The apprenticeship levy payment is £25,000
(0.5% x £5,000,000) – £15,000 (the allowance) = £10,000
Therefore Company A will pay £10,000 into the apprenticeship levy
|Company B’s wage bill is £2,000,000 per annum|
The apprenticeship levy payment is £10,000
(0.5% x £2,000,000) – £15,0000 (the allowance) = <£0
Therefore there is no apprenticeship levy for Company B to pay
How you pay the apprenticeship levy
The levy is due monthly and calculated on your total month’s wage bill. Your allowance is divided into monthly allowances of £1,250, and any unused portion is carried forward.
For example, if your liability in the first month is £750, you will carry forward the unused £500 of the month’s allowance to the following month. Your new allowance in the second month becomes £1,750.
What if you paid a levy in one month but have unused allowances going forward?
In many businesses there are likely to be months when the levy is paid and months when the allowance is not fully used. If you find yourself in this situation, you can be given a tax credit to offset against your other PAYE liabilities.
What if you have multiple PAYE schemes?
It may be that you have several PAYE schemes running concurrently. On one you might pay the apprenticeship levy, on another you might not use the full allowance. If this is the case, you can offset unused levy allowances between schemes at the end of the tax year.
When does the apprenticeship levy start?
6th April 2017. If you’re not ready by then you may not be meeting your obligations under the new rules of the apprenticeship levy.
How to prepare for the apprenticeship levy
Here are our tips to help you hit the ground running in April 2017:
- If your wage bill is more than £3 million, work out your apprenticeship levy liability with this calculator to get a handle on how much you’ll be paying.
- Make sure your payroll systems have been set up to pay the apprenticeship levy.
- Register with a digital government account from January 2017.
Get your teams working together now
Your teams and departments need to collaborate and be well-coordinated. As you can see, the apprenticeship levy cuts across all functions. You’ll need HR to carry out functions such as data crunching the make-up of your workforce, in order to be prepared in advance of the start date. Accounts should be working on the financial side of things, with payroll administering the monthly payments and allowances.
Contact Briars Group today. We’ll be happy to help you with the implementation of the apprenticeship levy and discuss how we can ensure you are fully prepared.