The new Apprenticeship Levy takes effect from 6 April 2017. Although the levy affects employers in all sectors, it will only be paid on annual pay bills in excess of £3 million – this means that, according to government estimates, less than 2% of UK employers will pay it. However, from 1 May 2017, changes are also being made to the way that apprenticeships are funded in England. The changes are designed to make it easier for employers of all sizes to navigate and choose the apprenticeship training they want to purchase.
Employers who currently have apprentices working for them, should note that the Levy will not affect the way they fund training for apprentices who started an apprenticeship programme before 1 May 2017. Employers will continue funding training for these apprentices under the terms and conditions that were in place at the time the apprenticeship started.
Those taking on apprentices from 1 May 2017 should refer to the Department for Education guidance entitled Apprenticeship funding: how it will work, which explains the principles that apprenticeship funding will operate on from that date. This applies to all apprenticeship funding in England from 1 May 2017, whether the employer pays the levy or not.
Broadly, the new apprenticeship funding system will be made up of 15 funding bands, with the upper limit of those bands ranging from £1,500 to £27,000. All existing frameworks and existing and new standards have been placed within one of these funding bands.
The Apprenticeship Levy on UK employers, which was first announced at Summer Budget 2015, is designed to fund new apprenticeships. It is expected that the Levy will allow the amount currently invested in apprenticeships to rise to £2.5bn in 2020.
The Levy is charged at a rate of 0.5% of an employer’s paybill and is payable through the PAYE Real Time Information (RTI) system alongside income tax and national insurance contributions (NICs).
The definition of ‘earnings’ which make up the employer’s paybill for the purposes of the levy are set out in the Levy Regulations – broadly, they are those on which the employer has a liability to pay Class 1 National Insurance contributions, or would have had such a liability if the secondary threshold that applies for NICs was disregarded.
Each employer will receive an annual allowance of £15,000 to offset against their levy payment. There is a ‘connected persons’ rule, similar the Employment Allowance connected persons rule, so employers who operate multiple payrolls will only be able to claim one allowance.
Anti-avoidance rules exist for situations where an employer engages in arrangements where the main purpose, or one of the main purposes, is to seek a tax advantage in relation to the Levy allowance. A severe penalties regime exists for those failing to comply with their obligations concerning the Levy.
Importantly, the governing rules make it clear that employers are not allowed to recover any part of the levy from the apprentice, or enter into any agreement with any person to do so.
Employers who pay the levy will be able to access a new digital apprenticeship service that allows them to spend available funds on apprenticeship training.