Don’t get caught out – prepare now for the new Apprenticeship Levy

25 August 2016

Earlier this month, the Government confirmed that the new apprenticeship levy will go ahead from April 2017, a scheme first announced in the Autumn Statement last year. With the main aim of supporting employers in all sectors to grow the number and quality of apprentices in their own workforce, the Government aim to cover the cost of their ‘three million apprenticeships by 2020’ target with this new levy. But, are you prepared?

Who is affected and how much will you pay?

Applying to all employers, both corporate businesses and not-for-profit organisations alike, the scheme will be charged at a rate of 0.5% of your annual pay bill from 6 April 2017. For the purposes of the levy, an ‘employer’ is someone who is a secondary contributor, with liability to pay Class 1 secondary National Insurance contributions (NICs) for their employees. Due to an allowance of £15,000 per year offset against the levy, the charge will only come into effect if you have an annual pay bill in excess of £3 million.

As an example, if you have an annual pay bill of £5 million, you will pay £10,000 into the levy for that year:

(£5m x 0.005) – £15,000 = £10,000

Another way to look at it would be that you are only paying the 0.5% charge on your pay bill over the £3m:

(£5m – £3m) x 0.005 = £10,000

Paid on a monthly basis through your PAYE to HMRC, the levy will accumulate throughout the year. Thankfully for those businesses with irregular pay bills each month, such as seasonal businesses, any unused allowance will be carried forward from one month to the next. If you do not currently exceed the £3 million threshold, yet your organisation is rapidly growing, do continue to monitor your monthly pay bill.

Leaving the calculations up to employers, you will have to declare to HMRC that you will be required to pay the levy and incorporate it into your normal PAYE payment to them.

The Government have provided an indicative online tool for you to estimate your contribution and the amount available for you to spend on apprenticeships.

But I already pay into a levy system, am I still affected?

Unfortunately, there is no let up for those who already contribute to industry specific levy systems or similar collective training arrangements, though do check your position as some will consult members on potential changes to existing arrangements.

How will I benefit?

Once you have declared your levy to HMRC (May 2017 being the first month this is possible), you will be able to access funding which you can use for training and assessment of apprentices in England.  Through your account on the Government’s new digital apprenticeship service – which you can register for from January 2017 and through which you will be able to access your funding – you will also be able to find the approved training providers to help develop and deliver your apprenticeship programs.

Further to this, the Government will apply a 10% top-up to the funds you pay into the levy, applied monthly, meaning you can technically get more out of the fund than you put in. However, to take full advantage and ensure you do benefit in this way, you will need to use your funds before they expire 18 months after they enter the account.  This includes the additional 10% top-up as well. You will therefore want to be smart with your timing and in the way you use your funding, and plan in advance.

Don’t wait until April!

Although you will not have to start paying the Levy until April next year and funding will not be accessible until the month after – and the draft legislation is still open to amendments,  we recommend you start to plan for this change sooner rather than later. Our dedicated in-house technical and training department are already getting to grips with the levy and what it will mean for us (yes, we will be affected too!), having begun to consider our strategy for future training.

It is vital to at least assess your current position and projected annual pay bill from April 2017 to check whether you will be required to pay. To take full advantage of the funding and additional top-up from the Government, you may want to not only plan the timing of your spending wisely, but also consider early what skills your business needs and could benefit from improving in the next, say, three to five years based on your strategic plans. What training do you currently offer? Will this provide the skills you may need in the next few years and, more importantly to ensure you receive funding, will this qualify under the apprenticeship standards? If not, how can you adjust it and do you have the relevant systems and processes in place?

Use this as a basis for the apprenticeship standards that you will implement in your apprenticeship programs going forward.

Further guidance on final details such as levels of funding and government support is expected to be released in October. We will be watching out for this guidance and will, of course, keep you updated.  In the meantime, if you would like to discuss the potential impact of the apprenticeship levy on your business, please contact your usual UHY adviser or complete our online contact form.

Nikki Vyas Ambrose