Apprenticeships Levy - Update
The government has released an updated guidance note (dated 21 April 2016) on the Apprenticeship Levy and how it will work. We look at what the current details are ahead of the roll out in April 2017.
As a reminder, the UK wide scheme will require employers to make a contribution of 0.5% of their annual wage bill in the form of an apprenticeship levy. However, as each employer is provided with an allowance of £15,000 to off-set against the levy, the net effect is that only employers with an annual wage bill of £3 million or greater will have to pay anything. The wage bill will include all payments on which employers are liable to pay Class 1 secondary National Insurance Contributions, including those earnings below the secondary threshold. Any levy payable will be paid though the PAYE process. Any levy paid is allowable for Corporation Tax.
We now have the following further details:
The £15,000 allowance
The allowance is to accumulate on a monthly basis so, every month, employers will be able to off-set £1,250 of the allowance against any levy liability. Any unused allowance is also capable of rolling over from one month to the next. The latest guidance also states that where an employer has unused allowance in a given month, and has previously paid the levy in the tax year, the employer can obtain a credit against other PAYE liabilities so, in principle, the employer will not be losing out.
Where companies are connected, that is, broadly where one company has control of the other or if both are under the control of the same person or persons, the employer will only receive one £15,000 allowance between them. However, by way of an amendment to the Finance Bill 2016 published in February, connected companies will be permitted to split the allowance between them, and notify HMRC of the amounts allocated to each before the start of the tax year.
An employer with multiple payrolls can reallocate any unused allowance at the end of the tax year.
Interaction with existing levies – no exemptions
Although certain industries (construction and engineering) already operate their own compulsory levies within their sector, the current guidance does not exempt such employers from paying the new apprenticeship levy and suggests that individual sectors may reconsider their own existing levies with their members.
Accumulating funds, and the 10% top up
In order to access apprenticeship funding, employers in England will need to set up a digital account which they will be able to register from January 2017. Available funding will be credited to the account within a few days of the previous month's levy being paid to HMRC, and the government will also top up any credited amount by an extra 10% at the same time. The amount to be credited is still to be confirmed, although it is likely to be based on the proportion of employees living in England, rather than elsewhere in the UK.
At present, the system will only allow for employers to use funds to pay for the apprenticeship training of their own employees and not those of suppliers, although we are expecting further guidance on this.
Employers operating in Wales will need to look at Welsh guidance on how to access their funding, and at present, there does not appear to be any such guidance available. Similarly, Scotland and Northern Ireland have separate apprenticeship authorities.
Although 24 months had previously been suggested as being a suitable period for employers to use any accumulated funds, the latest guidance states that employers will only have 18 months, after which they will expire.
The guidance makes a distinction between employers who pay into the levy and those who do not. For those who do pay, they will be able to use the digital apprenticeship service account to pay for any apprenticeship training from April 2017.
For those who do not pay the levy, although they can still use the digital apprenticeship service from April 2017 to select training, and training providers, they will not be able to use the service to pay for apprenticeship training until 2018 at the earliest. In the meantime, they will need to fund the training directly, with the government proposing to make a contribution (a "co-investment"), at an as of yet, unspecified rate.
Funds can only be used to purchase training from an approved training provider, and the end assessment must be conducted by an approved assessment organisation. If you currently deliver a high-quality in-house apprenticeship scheme, you could seek to be recognised as an approved provider.
There is scope to pool funds in a digital account with other employers in a group structure, if the group registers as a multiple PAYE scheme attached to a single digital account.
According to the government, three further rounds of guidance will be made available with the next being available in June 2016, and then in October and December 2016. Guidance in June 2016 is expected to include:
- Details of the provisional funding bands setting out the maximum funding levels available for each apprenticeship; and
- The preliminary funding levels available to non-levy paying employers.
The guidance in October 2016 is to include:
- Details of the final levels of funding, and
- Full drafts of the funding and eligibility rules
The guidance in December 2016 is expected to include the finalised rules, in addition to new guidance from HMRC on calculating and paying the levy.
For the moment, a number of questions remain unanswered, such as how much funding employers will actually receive for training purposes, either in their digital accounts or as a co-investment.
Furthermore, the Confederation of British Industry has called for the Institute for Apprenticeships (IfA), which is the overseeing body, to have a stronger role in managing the levy system. It has also called for greater flexibility in how employers can spend the funds, and has suggested that the digital service system be fully operational from the outset.
Finally, as the digital apprenticeship service roll out will support employers in England only, it is not yet clear how employers in the rest of the UK will be able to access such funding, even though they may be liable to pay the levy.