The Apprenticeship Levy

Inside Who has to pay? How much is the levy? Are any reliefs available? How is the levy administered? Are there any anti-avoidance provisions? Ensuring it works in practice What standards apply and how are they monitored? What does this mean for employers? inbrief

Introduction Who has to pay? Are there any anti-avoidance provisions? The Government is committed to The levy applies across all sectors to all employers in the United Kingdom with a gross There are comprehensive anti-avoidance boosting productivity by increasing the wage bill in excess of £3 million. For measures designed to catch arrangements quantity and quality of apprenticeships “connected” companies, the levy is payable if which attempt to circumvent the levy. Any - it aims to create three million the aggregate wage bill exceeds £3 million. arrangements designed to reduce the total apprenticeships by 2020 and Broadly speaking, companies are “connected” if wage bill below £3 million are likely to be one has control over the other or if both caught (e.g. deferring payment of wages or introduce new apprenticeship companies are under the control of the same bonuses from one tax year to another or standards. To help to fund this person. encouraging employees to work through initiative, the apprenticeship levy was personal services companies). Further, How much is the levy? introduced on 6 April 2017. Employers employers cannot reduce wages (whether of apprentices or other staff) to pay for the levy. with a wage bill of more than £3 The levy is charged at a rate of 0.5% of an employer's total gross UK wage bill (excluding million now pay an annual levy of Ensuring it works in practice benefits in kind). This is the total amount of all 0.5%. employees' earnings (including wages, While the apprenticeships levy applies to commission and bonuses) subject to Class 1 employers across the UK, the levy is This Inbrief provides an overview of secondary National Insurance contributions, but administered nationally as a devolved policy, how the apprenticeship levy works ignoring the employer National Insurance with different arrangements in place for and what it means in practice for contribution thresholds. For example, this England, Scotland, Wales and Northern Ireland. includes the earnings of employees under the employers. For England, the key practical points are as age of 21 and apprentices under the age of 25, follows: even though no employer National Insurance contributions are payable on those earnings. • The levy is paid into a central pot, accessed by employers in England via an online portal Are any reliefs available? known as the Digital Apprenticeship Service Each employer that pays the levy is entitled to a (“DAS”). £15,000 allowance per tax year to offset it so • A 10% Government top-up to monthly levy that, providing an employer uses its contributions is available for levy-paying apprenticeship allowance, the levy is in effect employers to spend on apprenticeship only payable on wages in excess of £3 million. training or assessment. However, employers that operate more than one payroll can only claim one allowance and • Employers access the fund created by the “connected” companies are only be entitled to levy and the 10% top-up in the form of one allowance – it is up to those companies to online vouchers to use via the online portal decide how to apportion it. to pay for accredited apprenticeship training programmes. A levy paying employer who In addition, the levy payment is deductible for wishes to spend more on apprenticeship corporate tax purposes. training than is available in their account can do so. They will only need to make a 10% How is the levy administered? contribution towards this additional training, In terms of administration, the apprenticeship with the remaining tab being picked up by levy is effectively a tax. Employers pay and the Treasury. report the levy to HMRC on a monthly basis • Employers that have not paid the levy due to under pay-as-you-earn (PAYE) real-time a smaller pay bill will also be able to access information, alongside PAYE payments and the fund via the online portal. 90% of this is National Insurance contributions. funded by the Treasury, with the employer Employers need to keep such records as HMRC only having to “co-invest” 10% of the specifies in respect of the levy for a certain training cost (although the Treasury will fund period of time and complete returns in respect 100% of the apprenticeship training cost for of the levy. Employers that fail to do so will be employers with fewer than 50 employees liable to a penalty of up to £3,000 per tax year. who employ certain types of apprentices). inbrief

• Levy paying employers have available to is a significant change, the Government will not or staff costs – or to fund existing in-house them, in full, the amount that they paid into withdraw the framework apprenticeships until training for non-apprentices. Many the fund for use on apprenticeship training 2020. By then it expects employers and employers that are liable to pay the levy and assessment. However, the vouchers to providers to have completed the transition to have no or limited apprenticeship access those funds are only available for 2 standards. programmes and so may struggle to spend an amount equivalent to the levy in the years. If not used in that time, the amount The Government has also made provision for an specified way. This means that there is likely will go towards the funds for employers that Institute for Apprenticeships (the “IfA”). This is to be money left over at the end of the two- do not pay the levy and the top-ups referred a new, independent body led by employers and year spending window which can be to above. Credit in the account will be used business leaders to regulate the quality of accessed by others through the central on a “first in first out” basis. apprenticeships. The IfA works closely with fund. • The DAS can also be used to select an apprenticeship providers to ensure that what is apprenticeship framework or standard, delivered is what is needed by employers. • Disproportionate impact on “temping” choose training provider(s) and post In another bid to safeguard the quality of agencies apprenticeship vacancies. Levy-paying apprenticeship training programmes, it is an Temporary employment agencies have a pay employers can further use it to manage offence for a training provider to call a course bill which can cover many thousands of payments to payment providers. an “apprenticeship” if it does not comply with (high turnover) temporary agency staff • The levy does not affect funding for the requirements of a statutory apprenticeship. placed in other businesses, whereas an apprenticeships that began prior to 1 May agency's core business consists only of a 2017, which should be funded and run in What does the levy mean for much smaller number of staff. Temporary accordance with the terms and conditions employers? employment agencies are therefore liable to pay a disproportionately large originally put in place in respect of those Some key implications are highlighted below: apprenticeships. apprenticeship levy compared to the • Increased costs for large employers number of apprentices they would be likely What standards apply and how are Employers are prohibited from recovering to train for their own purposes. they monitored? the levy from employees (by deduction from Next steps In implementing the new system in England, the wages or otherwise). Combined with the Government has taken a standards-based introduction of the National Living Wage, • Employers should continually review their approach to ensuring the quality of the levy has increased costs, especially for pay bill to work out if the business will need apprenticeships. The previous apprenticeship large employers, although this may have to pay the levy. If so, the business will need frameworks were criticised as not being been offset to a limited extent by the to budget for this extra cost, for any years in sufficiently rigorous or responsive to employers’ National Insurance contribution exemption which the gross wage bills is likely to exceed needs. To tackle this, the development of for apprentices under age 25. £3 million. around 500 clearer, more concise, standards is • Keep under review how to get the best out • Sector impact being led by a group of “trailblazer” employers. of the apprenticeship fund (especially if a Certain sectors, such as construction and This provides a selection of approved training levy paying employer). Review the structure engineering, also pay a separate industry- providers for each type of apprenticeship and of any learning development programmes - level training levy. For instance, the funding is available only for these approved can more training and development be Construction Industry Training Board (CIBT) providers. Apprenticeships are becoming delivered through apprenticeships? Levy is used to support construction available up to the highest level, with Remember that apprenticeships are not just employers with the costs of having an universities working with employers to deliver for young people. apprentice, including wages, travel and “degree apprenticeships” in professions such as tools. The apprenticeship levy and the CITB law, software development and accountancy. • Register for the online Digital Levy and engineering training levy operate Higher-level apprenticeships (degree level and Apprenticeship Service, even if not currently alongside each other. postgraduate study) and apprenticeships for a levy paying employer. school leavers (aged 16 to 18) are likely to be • Potentially limited benefit for some • Keep an eye on the growing number of eligible for increased funding. employers accredited training providers to consider If employers are to receive any benefit from relevant providers for your business. As of 18 January 2018, there were 220 paying the levy, they will need to employ standards approved for delivery and employers apprentices and ensure that their are already recruiting apprentices onto those apprenticeship scheme satisfies Government standards. standards. It cannot be used to pay salaries Recognising that the standards-based approach inbrief

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