How will the apprenticeship levy affect your business?

To help fund new Apprenticeships, the government has announced a new funding pot called the Apprenticeship Levy. This will replace all taxpayer funding of Apprenticeships from April 2017. If you are an employer with a payroll of more than £3 million per year then you will be required to pay into the Apprenticeship Levy.

Who will pay the apprenticeship levy?

Not everyone will pay the levy. Only those employers with a payroll of more than £3 million will be obliged to contribute. Those who do not pay the levy will still have to access Apprenticeships funding under the current system by obtaining funding via training providers.

However in some cases the government will also require you to pay a contribution to your training provider.

Below are a couple of examples of how the levy will work. The following site http://www.fas.report/ can also estimate how much your organisation will spend on apprentices.

Paying the levy:

Levied employer Non levied employer
Employer with 250 employees each with a gross salary of £20,000

Pay bill: 250 x £20,000 = £5,000,000

Levy sum: 0.5% x £5,000,000 = £25,000 Levy to pay

Minus the Government allowance: £15,000

Annual Levy payment of  £10,000

Employer with 100 employees each with a gross salary of £20,000

Pay bill:100 x £20,000 = £2,000,000

Levy sum: 0.5% x £2,000,000 = £10,000 Levy to pay

Minus the Government allowance: £15,000

Annual Levy payment of  £0

How much will the levy cost?

The levy is set at 0.5% of your payroll. However, the levy will be a monthly deduction, so in reality these costs will be taken in any month where your pay bill is over £250,000. If your pay bill in that tax year is below £3 million, then any levy deductions will be reimbursed.

All employers will receive an allowance of £15,000 to offset against payment of the levy. Your pay bill will be based on the total amount of earnings subject to Class 1 secondary employers NIC. Although earnings below the secondary threshold are not counted when calculating an employer’s NIC, they will be included for the purposes of calculating the amount of levy the employer needs to pay. For the purposes of the levy, payroll will include all wages, bonuses, commissions and pension contributions on which NICs are due. In technical terms, payroll means the total earnings upon which Class 1 secondary NICs are paid. It will not include other payments such as benefits in kind and reimbursed expenses. The levy is an allowable expense for corporation tax purposes.

How will the levy be collected?

Your payroll department will calculate, and pay your levy to HMRC, through the Pay as You Earn (PAYE) process alongside Income Tax and National Insurance from April 2017. Single employers with multiple PAYE schemes will be added together in levy calculations and will only have one allowance. There will be a ‘connected persons’ rule, so if you operate multiple companies or payrolls, you will only be able to claim one allowance. You will be able to choose how to divide the allowance between the different connected companies.

For further information you can visit the websites at   www.apprenticeshiplevy.gov.uk or www.gov.uk/guidance/pay-apprenticeship-levy.Alternatively you can speak to your local HMRC office who can help. An online support manual is also available at this web page www.gov.uk/hmrc-internal-manuals/apprenticeship-levy.

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