Guest blog by Rachel Harber, HR and Operations Director at Omega Resource Group.
In an attempt to expand the total number of apprentices in England to three million by 2020, the Government has implemented an apprenticeship tax to be charged to large employers, which will be introduced in April 2017.
What is the Apprenticeship Levy 2017?
In spring 2017 the way the government funds apprenticeships in England is changing. Some employers will be required to contribute to a new apprenticeship levy, and there will be changes to the funding for apprenticeship training for all employers.
In the 2015 Summer Budget, the Government announced that it would introduce an initiative to support the demand for a major increase in apprentices by 2020, and to address the decreased focus on employee training outside of the workplace.
Set to come into force in April 2017 (with payments to begin in May 2017), the levy will require large employers to invest in apprenticeships, with the size of the investment dependent on the size of the business.
The purpose of the levy is to encourage employers to contribute towards this rising demand for apprenticeship programmes, and to raise additional funds to improve the quality of the training schemes.
The Apprenticeship Levy, paid by large employers both in the public and private sectors, upon payment will be accessible in the form of a digital apprenticeship service account. This will then allow the businesses to select and pay for Government-approved training providers and post apprenticeship vacancies both online and offline.
Who will need to pay and how will it be paid?
The levy requires all employers operating in the UK, with a pay bill over £3 million each year, to invest in apprenticeships.
The levy threshold is calculated by size of payroll. Employers with a wage bill of more than £3 million will be required to pay the levy. This payroll threshold only applies to approximately 2% of employers, which means only larger SMEs fall into this group.
The levy amount is 0.5% of a company’s payroll, provided it exceeds the £3 million margin. In addition, the Government are also introducing a ‘levy allowance’ of £15,000 per year, which will be subtracted from the 0.5% total.
How will the Apprenticeship Levy be collected and recorded?
You’ll need to pay the Apprenticeship Levy each month through the PAYE process in the same way you pay Income Tax or National Insurance contributions.
Each month, starting from May 2017, the levy will be collected through the PAYE system, alongside Income Tax and National Insurance Contributions. Single employers with multiple PAYE schemes will only have one allowance.
Levy raised against the payroll of their employees who live in England will be available to fund apprenticeships. Funds raised against employees who live in Scotland, Wales or Northern Ireland will go into general taxation.
From 6th April 2017, and in addition to payment, businesses that are obliged to pay the tax will need to report how much Apprenticeship Levy it owes to HMRC each month. As a result, the business’ payroll team will need to send an Employer Payment Summary (EPS) as well as a Full Payment Submission (FPS). However, you will not need to report Apprenticeship Levy on your EPS if you haven’t had to pay it in the current tax year.
Records of information that the business has used to calculate the levy payment should be kept for at least three years after the tax year which they relate to.
How do employers benefit from the Apprenticeship Levy?
Once you have declared the levy to HMRC, you will be able to access funding for apprenticeships through a new apprenticeship service account.
Employers in England will be able to reclaim their Apprenticeship Levy contributions as digital vouchers to pay for training apprentices. Once the levy has been declared to HMRC, businesses will be able to access a digital funding account set up by the Government.
As an add-on, the Government has offered to contribute a 10% top-up to a business’ monthly contribution to the levy. So, for every £1 an employer contributes per month, they can spend £1.10 on apprenticeship training through the digital account.
The Government has also announced that any unspent funds in the digital account will expire after 24 months.
In order to access the digital account once payment has been made to the levy, you will need to create an account with HMRC online, using Government Gateway login details for the PAYE schemes that you want to include in your account. Once you’ve declared your levy for April 2017, you will see your balance in your account at the end of May 2017.
Choosing and negotiating Government-approved training:
Employers will need to choose the training they would like their apprentice to receive throughout their apprenticeship.
All employers must choose an apprenticeship training provider and negotiate the cost of the training.
With the implementation of the Apprenticeship Levy, the Government has decided to introduce new funding caps on each apprenticeship. This is the upper limit to which the Government funding from the digital account can be used to pay an apprentices training.
There are a proposed 15 new apprenticeship bands, ranging from £1,500 to £27,000. This value is the maximum amount that the Government will fund from a business’ digital account. Upon negotiation, if a value above the maximum is negotiated for any reason, the business will have to fund the additional surplus separately from the digital account.
Employers that don’t pay the levy (co-investment):
If an employer has not paid the levy and would like to train an apprentice, they will need to co-invest 10% and will benefit from government funding to cover the remaining 90% of the cost.
If an employer does not meet the £3 million pay wage threshold, but still wants to train an apprentice, they will now be obliged to pay 10% of the final negotated cost, known as ‘co-investment’.
Co-investment will also occur to any levy-paying employer who wants to invest more in apprenticeship training than they hold in their digital account.
In the first year of the new funding system, employers will need to pay their co-investment share directly to the Government-approved training providers. In time, the Government hope to gradually move to a system where the employer can pay this through their digital account.
Download Full Guide from Omega Resource Group – download includes an ‘apprenticeship levy calculator’
The full guide will give you an overview of the Apprenticeship Levy; who needs to pay it, how it’ll be collected, how employers will benefit, choosing Government-approved training and much more.
Included in the free guide:
• What is the Apprenticeship Levy 2017?
• Who needs to pay it and how will it be paid?
• What do employers get from the Apprenticeship Levy?
• Choosing and negotiating apprenticeship training
• How small employers are also affected
• A free ‘Apprenticeship Levy Calculator’