The Apprenticeship Levy in the UK: What is it?
By Merrill April, Sarah Martin and Emily Parker
The new Apprenticeship Levy (Levy), which came into force on 6 April 2017, requires certain UK employers to invest in apprenticeships.
Despite this coming into effect, a recent survey by City & Guilds has indicated that around 30% of employers required to pay the Levy are unaware of its existence.
Does the Levy apply to our business?
The Levy is only applicable to organisations:
- that operate in the UK; and
- whose annual ‘pay bill’ exceeds (or is expected to exceed) GBP 3 million; or
- who are connected to other companies/ charities for the purposes of their ‘Employment Allowance’ which in total have an annual ‘pay bill’ exceeding GBP 3 million.
‘Pay Bill’ explained
The business’s annual ‘pay bill’ is the total amount of employee payments that are subject to secondary National Insurance Contributions in that tax year (wages, bonuses, commissions, etc). This must also include earnings of employees under 21 and apprentices under 25.
What is the Levy rate?
Employers to which the Levy applies will have to contribute 0.5% of their annual pay bill towards the Levy. The Levy will be reported and paid to HMRC on a monthly basis via PAYE. Employers receive a ‘Levy allowance’ of GBP 15,000 deductible from the Levy payable, which may be split and allocated between different payroll references of the same or ‘connected’ parties.
Employers will be required to notify HMRC the first time they are required to contribute towards the Levy and provide details of how, if at all, they intend to divide and allocate the ‘Levy allowance’.
What will the Levy fund?
An employer’s Levy payments are credited to an online apprenticeship service account which the employer can access to pay for training apprentices via approved training/assessment providers under a new apprenticeship service. The government will top up employers’ credited amounts by 10%. Sums credited should be used within two years of the date they are credited otherwise they will ‘expire’. The Levy cannot be used to pay wages, travel or other costs associated with employing apprentices.
What if we have apprentices but are not required to pay the Levy?
There will be changes to the way apprenticeships are funded for everyone. Employers who are not required to pay the Levy (or who have used up all the sums credited by them) will need to contribute 10% of apprentice training and assessment costs; the government will fund the remaining 90%, subject to government funding caps on the relevant apprenticeship.
The Levy will not affect funding of training for apprentices who started an apprenticeship programme before 1 May 2017.
Merrill AprilMemery Crystal LLP, London, United Kingdom
T: +44 20 7242 59 05
Merrill is Head of Employment at Memery Crystal. She advises on contractual and other employment issues that arise throughout the employment relationship and on transactions, especially in relation to TUPE. She frequently works with owner managers setting up their employment and HR structures, drafting contracts and policies and working with HR and in-house lawyers in delivering the HR/employment law service to their business. She also represents in the High Court in relation to contractual disputes and business protection.
Published: July 2017 l Photo: contrastwerkstatt - fotolia.com