“The U.K. Apprenticeship Levy–Funding More Apprenticeships” is a grand claim indeed, but that is the U.K. Government’s aspiration for the Apprenticeship Levy with a planned three million apprenticeship starts in England by 2020. You may have noticed an obvious omission here: what about Scotland, Northern Ireland, and Wales? More about devolved U.K. nations later.
What is the reason for the Apprenticeship Levy? It is the Government’s response to a decreasing number of employers committing to quality training through apprenticeship programmes and the impact this has had on the U.K.’s standing in global league tables in recent years. Simply put, U.K. employers and the Government together have not been doing enough to increase the knowledge and skill base of our employees in the workplace when compared with other countries.
Commencing April 2017
In the May Global Payroll issue, I wrote about an announcement made in the 2015 Summer Budget where the Chancellor confirmed that the Apprenticeship Levy would be introduced in April 2017. This remains the case—information and guidance have now been published, along with a timetable for future publications, to help affected employers understand what will change for them beginning in 2017 and to enable them to plan for future apprenticeship starts.
The employer levy rate is set at 0.5% of an employer’s paybill. The paybill is based on the amount of earnings subject to Class 1 secondary National Insurance Contributions (NICs). While earnings below the secondary threshold are not counted when calculating an employer’s NICs, they will be included when calculating the amount of levy that the employer needs to pay. In a nutshell, the paybill is based on NIC earnings. At this point, I have to acknowledge and readily accept that the principle of “in a nutshell” rarely applies within payroll—if only life were that simple.
A levy allowance of £15,000 will be available to offset against the levy payment, which means that, in theory, employers will only pay over an actual levy payment when their paybill is in excess of £3 million. The levy allowance will be administered in monthly amounts of £1,250, with any unused allowance being carried forward from one month to the next.
This example will help to clarify:
The paybill is £200,000 in tax month one. When multiplied by 0.5%, this will result in a levy amount of £1,000, which will be offset against the levy allowance of £1,250 and result in no levy payment being due. The unused allowance of £250 will be available for offset in the following tax month.
In line with the PAYE RTI (pay as you earn real-time information) process, the figures are due to be reported as year-to-date amounts.
It is not uncommon to see employers with multiple PAYE schemes in operation. The reasons for this occurring are many and varied; however, only one scheme will be able to access the levy allowance. If any levy allowance remains unclaimed by the end of the tax year, it can then be offset against another scheme at the end of the tax year. At the time of publication, the process for achieving this transfer is not known.
As a result of the allowance, it is predicted that only employers with paybills in excess of £3 million will pay the levy when it is introduced.
Fluctuating Monthly Paybills
Given the process of the monthly offset of the levy allowance, concerns have been raised about the impact this could have on employers that experience monthly fluctuations in their paybills over the year. These employers could exceed the allowance offset in any given tax month but over the year will have a paybill of less than £3 million. HM Revenue & Customs (HMRC) and the Department of Business, Innovation & Skills (BIS) assure that these employers will not be subjected to the levy unless or until their annual paybill exceeds £3 million or is predicted to exceed that level during the year.
At the time of publication, we understand that this will be achieved by way of a “self-serve declaration” by employers on a paybill amount of less than £2.8 million for the previous tax year and confirmation that they don’t predict that they will exceed the £3 million paybill in the current tax year.
Connected Companies or Charities
Where a group of employers are connected and for the purpose of these rules, (the definition of which remains the same as for that used for the purpose of claiming the employment allowance), the group can decide before the tax year begins (i.e., before April 2017) to apportion out the levy allowance so as to ensure that, again, grouped companies will not become the unfortunate victims of the levy where, had they been a single company or charity, they would have been able to offset the allowance and wouldn’t be subject to a levy payment.
The Finance Bill 2016 isn’t written so as to allow this, so an amendment will be made at the earliest opportunity. This outcome is the result of successful lobbying by stakeholders during the consultation process and is welcomed.
The Apprenticeship Levy is a U.K.-wide initiative and so will be paid by U.K.-wide employers. Also, as announced at the 2015 Summer Budget, employers committed to an apprenticeship programme will receive a 10% top-up to their monthly levy contributions in England that will be available for them to spend on apprenticeship training through their digital account. The digital apprenticeship service will be available in England only.
The Digital Apprenticeship Service (DAS)
DAS will be available within England to employers regardless of whether they pay the levy. It aims to help employers:
- Select an apprenticeship framework or standard
- Choose the training provider or providers
- Choose an assessment organisation
- Post apprenticeship vacancies
From April 2017, levy payers will be able to:
- See the funds that they have available to spend in England
- Set the price that they have agreed upon with their training providers
- Pay for apprenticeship training and assessment
This brings us neatly to the subject of devolution and the impact that this will have on how U.K.-wide levy-paying employers will be able to spend they levy payment.
Apprenticeships are a devolved policy, meaning that it is for authorities in Wales, Northern Ireland, and Scotland to decide how the levy funding will be paid within their U.K. nations.
For employers that operate in England only, 100% of the levy they pay will be placed into their digital accounts within DAS, which will receive a 10% top-up.
For employers who operate across the U.K. nations, the levy they have available to spend in England will be allocated according to where their employees reside. This will be based on a headcount sweep, taken by HMRC (when has yet to be confirmed), and relies upon the data held for employees by HMRC being accurate and up-to-date.
The final details have yet to be ironed out, but an example follows that will help clarify the impact this will have on the levy paid:
An employer has 80% of its employees reside in the U.K., with 20% residing across the rest of the U.K. nations. Eighty percent of the levy paid by the employer will be transferred to its digital account, which will be subject to the 10% top-up and be available to spend by the employer in England on apprenticeship training.
Put employers at the heart of their apprenticeship programmes, involve them in the payment of apprenticeship training, and the quality and outcomes of apprenticeships will increase. This is the prediction and the Government’s hope —we wait with interest to see if these outcomes are achieved.
Certainly when we look to employers that are training providers in their own right and who have longstanding and extensive apprenticeship programmes, they are seen as being highly successful in delivering the highest level of skilled workers to the U.K. workforce and economy.
Much more could be covered, but rest assured there will be more to come as further details are finalised and made public to employers, their payroll professionals, and software developers. So I sign off until next time with my regular farewell mantra—“and there’s more!"