From 6th April 2017, all UK employers with a salary bill of more than £3 million will be required to pay a levy to fund new apprenticeships. This applies to all employers, across all sectors.
If your organisation falls into this category, the levy will be 0.5% of your salary bill and it will be collected each month by HMRC. It will be collected through Pay as you Earn (PAYE), alongside Income Tax and National Insurance Contributions. The funds will then be available via a digital account, so you can reinvest it in your workforce by providing apprenticeships for new recruits and to up-skill existing employees.
Employer of 500 employees, with an average gross salary of 20,000
Salary bill: 500 x £20,000 = £10,000,000
Levy entry point: £3,000,000
Therefore levy payable on £7,000,000
Levy sum: 0.5% x £7,000,000 = £35,000
Get more back
Good news! The levy will create an extra £1 billion a year to pay for apprenticeships in England, increasing spend from £1.5 billion to £2.5 billion annually. This will up-skill the whole country, increase productivity and improve the economy.
Employers in England who pay the levy will be able to get more back than they pay in because the government will pay a 10% ‘top up’ to their levy contribution. This payment will be made each month into the employer’s digital account.
Employer has £1500 per month entering their levy account
Monthly top up: 10% x £1500 = £150
Total levy account payment each month: £1500 + £150 = £1650
Total to spend each year on apprenticeships = £19,800
What’s in scope for the levy?
Wages, bonuses, commissions and pension contributions that you pay Class 1 secondary employers’ NICs on are all in scope for the levy – and this counts for all staff, including directors. However, other payments such as benefits in kind and reimbursed expenses are out of scope.
While the levy is 0.5% of your salary bill, deductions will be taken each month, so in reality these costs will be taken in any month when your pay bill is more than £250,000. If your pay bill turns out to be less than £3m by the end of the year, any levy deductions will be reimbursed.
The levy is an allowable expense for corporation tax purposes.
Use it or lose it
Levy payments and top up payments made into digital accounts will expire after 24 months - therefore you’ll need to take action in order to benefit from them.
At the moment levy money can only be spent on apprentices employed by the levy paying business. However, in future the government intends to allow some businesses to share levy allowances - for example, you could share allowances with your supply chain partners. Government is currently investigating ways to make this possible and there will be more information about this in 2017.
However, if you are in a group of companies deemed to be ‘connected’ for the purposes of paying the levy, your group will be able to collect their funds together into one account.
What can you use your levy funds for?
Funds can be used for apprenticeship training and assessment with an approved provider.
However, levy funds cannot be used for:
- Statutory licences to practice
- Travel and subsidiary costs
- Managerial costs
- Work placement programmes
- The costs of setting up an apprenticeship programme.
Apprentices who have been accepted onto an apprenticeship before 1st May 2017 will be funded for the full duration of the apprenticeship under the current (e.g. pre-levy) conditions. If you pay the levy you will not be able to use the funds in your levy account to pay for these apprenticeships.
Act now to get the most out of the levy
If you will have to pay the levy from April 2017, act now to get the most out of it. Examine your training budget and explore how staff development costs could be reclaimed through the levy. For example, there are a range of apprenticeships that cover leadership and management which could be a cost effective and preferable alternative to ad hoc training. We can help you understand the opportunities available.
Importantly you can use your apprenticeship levy funds to offer training to your exiting staff as well as new entrants to your business. This means that there are lots of options available. Moreover, apprenticeships are so flexible that there are course options to match almost every job role you can imagine – plus there is the opportunity for employers to develop their own apprenticeship programmes that are directly relevant to your business. Contact us to find out more.
Funding for non-levied businesses
It won’t just be businesses paying the levy that are able to benefit from apprenticeships, there will still be funding available for businesses with a salary bill of less than £3 million.
From April 2017, these employers will be required to co-invest 10% towards the cost of their apprenticeship training and the government will contribute the remaining 90%. Initially these employers will not be able to access the digital apprenticeship service (they will not be able to do so until 2018/19), so will need to make payments directly to the university.
What if I want to invest more than my levy payment?
There will be no restrictions on the amount that your business can invest in apprenticeships. If you are paying the levy and wish to spend more on apprenticeships than the amount in your digital account, you will need to fund the extra amount through a co-investment 10% and the government will contribute the remaining 90% of the costs.
There is extra government support for apprentices who are under 25 years of age; those who have Local Authority Education and Healthcare Plans and/or those who need to gain Level 2 Maths and English.
Working with the University of Gloucestershire
In addition to working with you to provide apprenticeships that will deliver the most benefit to your business, we are here to help you make sense of how funding for apprenticeships is changing and the opportunities that are emerging for businesses in Gloucestershire. Contact us to find out more and get answers to any questions that you might have.
Call us on 01242 715400 or email firstname.lastname@example.org to find out more.