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Apprenticeship Levy to be introduced on 6th April – what you need to know

On 6th April, a levy will be introduced on the payrolls of employers, intended to fund as many as three million apprenticeships starting in 2020.

However, it has emerged that almost one in three employers is not aware of this. According to a survey carried out by Skills for Health and Justice and the National Skills Academy for Health, more than half didn’t know or were not sure whether the levy would have an effect on their business.

What employers need to know.

An allowance of £15,000 per employer will be given to offset against the levy payment, which will only apply to payrolls that are over £3 million. That criterion will mean that fewer than 2% of UK employers will end up paying the levy, which is expected to be set at 0.5% of the payroll of affected companies.

  • For example, an employer with 125 employees, each with a gross salary of £20,000 will have a total annual payroll of £2,500,000. They will therefore have a levy sum of £12,500 (0.5%) but because the allowance is £15,000, there will be nothing to pay.

  • However, another employer who has 300 employees, each with a gross salary of £25,000 will have a total annual payroll of £7,500,000. They will therefore have a levy sum of £37,500 and once the allowance has been deducted, the amount to pay annually will be £22,500.

The apprenticeships levy ties into the new digital apprenticeship voucher system which was announced in March 2015. If an employer pays the levy and provides apprenticeship training, the Government will provide a top-up to the employer’s digital account. If an employer who qualifies for the levy does not undertake enough apprenticeships to claw back their contribution, they could see the money they have paid used to provide support for other firms throughout the country.

Employers whose payrolls mean that they do not have to pay the levy can still access government support for apprenticeships.

It’s anticipated that a new independent employer-led body will be established to set apprenticeship standards, ensure quality and provide advice on the amount of funding that each apprenticeship should receive. Programmes that have high costs and are of high quality will be entitled to receive more funding.

The levy will be collected through the employer’s PAYE and will be payable alongside income tax and National Insurance.

What should you do?

Many employers already operate apprenticeship schemes, so they will likely benefit from the new scheme, although calculations will have to be undertaken to ensure that the provisions they currently have in place remain cost-effective. For those businesses whose payroll levels mean that they are required to pay the levy, they should factor that expense into their annual budgets from 2017 onwards.

For those companies whose payroll levels are not high enough for the levy to operate, the scheme offers an opportunity to receive more funding for apprenticeships.

Companies that do not currently operate apprenticeship schemes may find that the business climate has now become more favourable and may wish to consider putting such a scheme into operation.

As with all major business matters, advice should be taken before making any decisions.

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