By Paul Mander, Penningtons Manches LLP
From 6 April, 2017 UK businesses will have to report to HM Revenue and Customs (HMRC) for calculation of a new compulsory levy to fund apprenticeships across the UK. The levy will be used to build a central ‘pot’ of money which will be topped up by the government to help fund both existing apprenticeship schemes and the government’s pledge of three million new apprenticeships in England by 2020. This is part of a wider objective to encourage people to enter the workplace without degrees.
The starting point of the levy is that all employers will owe a sum equivalent to 0.5% of their total wage bill. They will, however, receive an offset allowance of £15,000, meaning that only employers with an annual wage bill in excess of £3 million will have to pay money to HMRC under the levy. This £15,000 allowance can be lost as a penalty if a business fails to submit levy calculations through PAYE, even if the business is below the £3 million threshold and would not otherwise have had to pay.
The way businesses access apprenticeship funding is also changing. In England, a Digital Apprenticeship Service (DAS) was set up from October 2016 and UK employers with employees in England, who exceed the £3 million threshold and pay the levy, will be able to access funding through their own personal accounts. Employers below the £3 million threshold who do not pay the levy will not have access to levy funds, but will have access to the DAS, through which they can make contributions to the cost of apprenticeships and access government funding.
Guidance has been issued by the government which gives some idea of how the levy may work:
The levy will be paid to HMRC through the Pay as You Earn (PAYE) system. It is equivalent to 0.5% of an employer’s annual pay bill and each employer will have a levy allowance of £15,000 (meaning that no payments will need to be made unless your annual pay bill is more than £3 million).
For the purposes of calculating the levy due, an employer’s annual pay bill is the total amount of earnings subject to Class 1 Secondary National Insurance contributions (NIC) and includes wages, bonus, commissions and pension contributions on which an employer pays NIC. Currently, any benefits in kind subject to Class 1A National Insurance contributions are not included.
This will operate on a monthly basis and accumulate through the year. Any unused allowance can be carried forward to the next month and, where you have unused allowance in one month and paid the levy in the previous tax year, you may receive a credit. Even if your pay bill does not exceed £3 million, you will still need to take action to ensure that you fully benefit from the levy allowance. You may end up paying the levy in some months and not others, for example if you have a high number of seasonal workers.
Tools will be available from January 2017 to allow employers to register and create a digital account through which they can access and administer their apprenticeship levy and allowance. A new funding system in relation to apprenticeships will be introduced from May 2017 in conjunction with the apprenticeship levy.
The levy will affect all businesses so the time to start preparing for DAS and levy reporting will soon be upon us. We will issue further updates when more details are known, but if you have any questions or would like further information about the current position, please get in touch.
Paul Mander is a Partner and the Head of Penningtons Manches’ employment law team. He advises on a broad range of contentious and non-contentious employment and partnership matters and is recognised in particular for his expertise in restrictive covenant and injunction issues. Paul is experienced in all forms of employment litigation, both in the High Court and tribunals, as well as boardroom disputes, discrimination (in employment and partnership), TUPE matters and outsourcings. He is recognised as a leader in his field by both Chambers Guide to the UK Legal Profession and The Legal 500.