The Apprenticeship Levy – How does it work?
Natalie Ruane explains the upcoming Apprenticeship Levy and how it will affect your business.
In 2015 the government announced that it was to become the responsibility of large businesses to help fund apprenticeships. The result of this announcement is the ‘Apprenticeship Levy’.
This scheme will fund apprenticeships through the taxation of large businesses. The government are looking to raise £3 billion a year to fund 3 million apprenticeships by 2020.
The Apprenticeship Levy will come into force on April 6th 2017.
What is the Apprenticeship Levy?
- The apprenticeship levy will only impact upon business with a wage bill of £3 million per annum. The levy has been set at 0.5% of the company’s pay bill. The levy will be paid out alongside PAYE, income tax and national insurance contributions. The levy is effectively a new tax to help fund apprenticeships.
- Employers who pay the levy, will get £15,000 back from the government in 12 monthly instalments of £1,250 via the Digital Apprenticeship Service.
- Government forecasts predict that 2% of employers will have to pay the levy.
- The employer will have to report and pay their levy to HMRC through the PAYE process.
How the Apprenticeship Levy will work.
Employer has 200 staff all earning £20,000 = £4 million wage bill.
0.5% of £4 million = £20,000.
Levy = £20,000
Government Offset = £15,000
Total yearly Levy = £5000.
How does the scheme encourage more apprenticeships?
Employers and businesses will get more out of the levy if they commit to training more apprenticeships.
The £15,000 government levy contribution will be paid back to the employer in ‘digital vouchers’. These digital vouchers can only be redeemed against training more apprentices. These vouchers will expire within 24 months, so they will have to be redeemed with that time limit.
Employers will also be able to claim an additional 10% top up to spend on training for their apprentices. For every £1 entered into an apprenticeship service account, employers can claim £1.10 back.
Funds in the digital account will cover apprenticeship training and assessment with government approved providers and assessors.
These digital funds do not cover wages, travel costs accrued by the apprentices or any costs setting up an apprenticeship programme. A final way employers can spend the digital account funds is to help apprentices to reach higher or same level qualifications. The fund can be spent wherever a new set of skills is taught.
The government has published an updated guidance note on 13th February 2017 which can be viewed here.
For more information on employment law and apprenticeships please contact Natalie Ruane on firstname.lastname@example.org or 01228 552222.
About the author
Natalie is a Partner and leads the Employment Law & HR team and specialises in education.