The Apprenticeship Levy is due to come into force on 6 April 2017 and its aim is to fund new apprenticeships. It will apply to all employers across the UK.

Each UK nation manages their own apprenticeship programmes. Employers in England will be in control of their funding through a digital apprenticeship service account.  Separate arrangements will be in place for employers in Wales, Scotland and Northern Ireland.

Paying the Levy

The levy will only be payable by employers who have an annual pay bill of over £3 million. The pay bill being the total amount of their employees’ earnings that are subject to Class 1 National Insurance Contributions.

The Levy will be calculated at a rate of 0.5% of the employer’s payroll bill. Each employer will receive an allowance of £15,000 to set off against the levy they have to pay. For example an employer with an annual pay bill of £4 million will have a levy payment to pay of £5,000.

£4,000,000 x 0.5% = £20,000 minus £15,000 allowance = £5,000

Connected employers will only be able to use one £15,000 levy allowance. The group will have to decide what proportion each employer can claim up to a maximum of £15,000.

The levy will be reported (presumably via RTI – but not yet confirmed) and paid to HMRC through the normal monthly PAYE remittances process.

Employers who do not have to pay the levy will still receive a contribution from the government towards training and assessments of their apprentices.

Digital Service Account

Employers who are liable to pay a levy in England will receive their apprenticeship funds through this service account. Relevant employers can register for a digital apprenticeship service account from January 2017.

Apprenticeship training that is brought through the digital apprenticeship service will be paid from the funds within the account each month and paid to the training provider.  If there is not enough money in the account in a particular month, the employer will be asked to make a contribution to the extra cost of the training.  This amount should be paid direct to the training provider.

The government will provide some support for the additional costs, up to the maximum amount of funding for that apprenticeship.  This will be at the same rates for employers’ who do not pay the levy.

Funds in the digital account can only be spent on training from a government-approved training provider.

For employer’s that do not pay the apprenticeship levy they will not need to use the digital service to pay for apprenticeship training and assessment.  However this is expected to change in 2018.

New Funding System

The new funding system starts on 1 May 2017 and applies to all employers whether or not they have to pay the levy.  The level of funding that goes into an employer’s account each month will be calculated using the following information:

  • The monthly levy paid to HMRC
  • Multiplied by the proportion of the employer’s pay bill paid to their workforce living in England
  • Plus a 10% government top-up on this amount.

Funds in the digital account will expire 24 months after they enter it unless the employer spends them on apprenticeship training with a training provider.

Employers’ who don’t pay the levy will be asked to make a 10% contribution to the cost of training and the government will pay the remaining 90% up to the maximum of the government funding available for that apprenticeship. This will be known as ‘co-investment’.

As with a digital account, funding by the government through co-investment can only be used against the costs of apprenticeship training and assessments delivered by an approved trainer.

Preparation

Businesses need to review their current payroll costs to assess whether the levy will apply to them and if so the impact this may have on them.

One further point to note is that where the new ‘Off-Payroll working in the Public Sector’ rules apply, the payment made will count as part of the fee payers wage bill for the purpose of calculating the apprenticeship levy.

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