The Apprenticeship Levy Explained

1 September, 2016
by: Cripps Pemberton Greenish

The government has now confirmed that the apprenticeship levy Apprenticeshipwill be introduced on 6 April 2017, which will transform the way apprenticeships are funded and the basis on which businesses work with training providers. The idea is that this reformed programme streamlines a notoriously complex system and encourages employers to embrace apprenticeships as a way of meeting their current and future skills gaps.

What is the levy and who must pay it?

The levy is essentially another tax alongside income tax and national insurance contributions. Once the levy has been paid via PAYE, a proportion of the levy which reflects the number of employees living in England will enter a digital bank account through the Digital Apprenticeship Service which employers will be able to log into. The employer will be able to use this fund (in addition to a 10% uplift provided by the government) from 1 May 2017 for training and assessment of apprentices within their businesses. The employer can choose which training provider to use, or if the employer is in a position to deliver training in house, there will also be an option for the employer to become an approved training provider itself.

Employers will need to pay the levy if their gross pay bill is more than £3 million each year, in any sector. The levy will be charged at 0.5% of the annual pay bill, with an annual allowance of £15,000 to offset against the levy payment.

What does this mean for you?

If the levy applies to your business (i.e. if your annual wage bill exceed £3 million), you have a number of things to consider. A few of these are as follows:

  1. The cost of the apprenticeship levy should be fully projected now so that the future costs are clear.
  2. Consideration should be given as to whether the levy is paid simply as a ’tax’, or more shrewdly, paid with a view to making the most of the benefits of the funds available.
  3. The specifics of utilising apprentices should be mapped;
    3.1. What will the apprentice programme look like?
    3.2. How will the company ensure all areas of the business buy into the programme?
    3.3. How will the training be delivered and which provider will be used?
    3.4. What recruitment strategy will be used to ensure the right apprentices are selected?
  4. Ensure apprenticeship contracts are prepared and ready to be utilised.

Conclusion

The final funding model for the apprentice levy will be confirmed in October 2016 and guidance will be published in December of the same year. The initial reaction to the proposals have been far from positive. The levy is all well and good if the employer operates within an industry that widely uses apprentices, but for those employers in industries were apprentices are not commonplace for practical reasons, they may well feel hard done by with yet another business tax which is indiscriminately cast on all employers whose payroll bill exceeds the £3 million threshold. How this plays out in practice is yet to be seen