Apprenticeship Levy Allowances for Employers

Apprenticeship Levy

What is Apprenticeship Levy?

In the UK the employers are charged with the Apprenticeship Levy to fund new apprenticeships. The levy that is charged is only at the rate of 0.5% of the total pay bill of an employer. An allowance of £15,000 is received by every employer to compensate them against the payment they do for the levy. In the April of 2017, the Digital Apprenticeship Service was introduced. The Digital Apprenticeship Service is a service in the England that is to manage the apprenticeship funding done by the employers, thereby giving control of apprenticeship funding in the hands of the employers.

The Objective of the Policy

The main objective of the UK government is to boost up productivity by investing on human capital. The policy encourages the UK government to make commitments to help its people develop vocational skills. Increased vocations skills will lead to increased quality and quality of apprenticeships. In the beginning of 2020, the UK government is committed to have additional number of apprenticeship in England at 3 million. The Apprenticeship Levy will support in increasing the quality of training by bringing employers to the core of systems to help deliver new and smarter apprenticeships. Employers participating in the training with full commitment will be benefited more than what they offer to a significant number of apprentices through training.

People Who are Likely to be Affected

This will affect employers in all sectors. The annual pay bills that will exceed £3 million are most likely to attract this levy charges and this consist of less that 2% of total employers of UK who will be get affected by this.

How the Measures were brought into Action?

In April 2015 Summer Budget, the Apprenticeship Levy was announced and at the 2015 Autumn Statement, it was declared that the levy would be effective from April 2017 onwards. Between 21 August 2015 and 2 October 2015, a consultation with the employers was held to know from them how the levy can be brought into practice. The government on Autumn Statement of 2014 announced abolishing of employer Class 1 National Insurance Contributions for apprentices below the age of 25 on the incomes up to £827 (weekly limit) from 2016 to 2017.

Proposal Detail

Date of Operations

The Apprenticeship Levy is effective from 6 April 2017 onwards.

What Does the Current Law say?

The Apprenticeship Levy is a new measure and there is no existing legislation.

Revisions that are Proposed

Legislation was introduced in 2016 Finance Bill, which stated that a levy has to be charged at the rate of 0.5% on the employers’ pay bills. It further explained, levy to be payable through PAYE (Pay As You Earn) and to be made payable along with National Insurance and income tax. In the view of keeping the process simpler it was declared “pay bill” to be based on the employers’ total income, depending on the Class 1 secondary National Insurance Contributions. Annual allowance of £15,000 will be received by every employer to compensate against their payment of levy. Similar to the Employment Allowance connected person, rule, this also will have a connected person and rule to check the employers with multiple payrolls operating options cannot claim more than one allowance.

Outline of the Impact

Exchequer impact (£m)

You can find these figures in the Table 3.1 of 2015 Autumn Statement, which have been certified by the Office of Budget Responsibility. For more information on the same you can check policy costings documents that are published along with 2015 Autumn Statement.

Economic Impact of the Apprenticeship Levy It is believed that the Apprenticeship Levy will help in increasing the productivity by enhancing the training. Near-term impact may also take place that can reduce the growth of income, however by following increase in productivity. Along side, it is believed this levy to help in generating more profitability for businesses and better income over a long time frame.

Impact of Apprenticeship Levy on individuals, households and families The Apprenticeship Levy policy is not expected to be impacting forming families, stability or breakdowns. Also, even household and individuals will not have any kind of direct impact of this levy. On the other hand it is believed that more apprenticeship vacancies will be created in the near future by Apprenticeship Levy.

Equalities Impacts of Apprenticeship Levy There is no expectation if there can be any impact on direct equalities on the groups that are sharing protected behaviours.

Impact on Trade and Business that includes Civil Society Organisations

The Apprenticeship Levy is aimed at supporting quality training, and all the employers who are committed to the idea of training can easily get more returns than what they pay in the levy. The UK Government has an intention to make this measure managerially simple without any complexities and this is the reason that employers will be allowed to pay and report Levy payments using PAYE a real time information (RTI), which is a normal payroll processes. The Apprenticeship Levy can also be operated depending on the definitions known, which are already used by the employers in the association with National Insurance contributions. The levy is expected to be paid by less that 2% of the employers in UK, (only those who have more than £3 million as their annual pay bills). While employers will pay the levy, there is an expectation that the measure will have some administrative cost impacts, which will differ from employer to employer, based on the size of their pay bills. The motive of the policy is they will make assessment and pay the levy month wise. HM Revenue and Customs (HMRC) will engage employers to understand the necessary measures, discuss and make assessment of the expected impacts they might face.

What will be the Operational Impact (£m) (HMRC or other)?

There will be no significant operational impact on HMRC. Employers will pay the levy through PAYE RTI submissions from where it will be collected. There may be a requirement to change the HMRC’s accounting system. Estimated cost incurred by HMRC to set up the levy process and system is at £7 million.

What are the Other impacts?

All other impacts have been measured and none could be identified.

Supervising and Assessment

There will be proper assessment and monitoring of the information collected through employer’s tax returns.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.