The Apprenticeship Levy will introduce a new cost for employers from April 2017. It is a charge based on the total employee earnings subject to Class 1 Secondary National Insurance Contributions (NIC’s).
Why is it being introduced?
It is a change in the way that apprenticeship schemes are funded. The money raised will go into a pot, from which grants will be given to cover the cost of training an apprentice.
All employers – even those with a pay bill of less than £3 million per year who won’t have to pay the Levy – will be able to claim funding to support apprenticeships. Employers will be able to use their funding (up to a cap which will depend upon the standard or framework that is being trained against) to cover the cost of an apprentice’s training, assessment and certification.
What will the cost be?
The Levy will be charged at a rate of 0.5% of an employer’s pay bill subject to Class 1 Secondary NIC’s. The allowance per month (meaning the first amount you don’t have to pay) is £1,250, which covers the 0.5% rate for wage bills up to £250,000. Anything over this will continue to be charged at 0.5%.
It will apply to all UK employers in both the private and public sectors. There is an allowance of £15,000 per year which means that, in practice, the Levy will only be payable if you have a monthly wage bill of more than £250,000, which works out at £3 million per year. Employers with a monthly pay bill under £250,000 will not pay the Apprenticeship Levy.
Take a business which has 300 employees, all paid £20,000 per year (which attracts Employer’s NIC’s). The annual wage bill is therefore £6 million, or £500,000 per month. The monthly Levy would be £500,000 x 0.5%, which is £2,500. The allowance is £1,250 per month, meaning that the actual amount the business would have to pay is £2,500 – £1,250, giving a total of £1,250 per month.
How will the Apprenticeship Levy be collected?
Levy payments will be collected monthly by HMRC through Pay As You Earn (PAYE), payable alongside tax and National Insurance.
A connected person rule, similar to the one used for the Employment Allowance, will mean that employers who operate multiple payrolls will only be able to claim one allowance for the Apprenticeship Levy. Connected employers will be able to determine how to share the allowance for each group member but they must do this at the start of the tax year, when it will be fixed.
Impact on seasonal labour
If your wage bill varies during the year – for example through additional staff at Christmas or agricultural workers at harvest times – then you will pay the Levy if your bill rises above the £250,000 allowance threshold on any given month.
However, the allowance can be rolled over. Any part of the £1,250 monthly allowance unused can be carried forward to the next month. For example, if your Levy liability in month 1 is £1,000 you will not pay the Levy and your allowance in month 2 will be £1,500. If you have some unused allowance in a month, but paid the Levy previously in the tax year, you can receive a credit that can be used to offset against your other PAYE liabilities.
If any part of the Levy is unused at the year-end, employers can offset it against another of their PAYE schemes after the end of the tax year.
All Apprenticeship Levy paid will be allowable for Corporation Tax.
It’s worth remembering that apprenticeships are a devolved policy, so work differently across the UK. You can find more information about the system, and which organisation looks after apprenticeships where you are, on the UK Government’s website.
If you have any questions, please get in touch with Neil Cameron, Head of our Payroll Department, on 0131 558 5800 or firstname.lastname@example.org.