22 March 2017

The new apprenticeship levy: what you need to know

We answer some key questions about the new apprenticeship levy, including why it's being introduced, who will have to pay and how the levy will be used.

The new ‘apprenticeship levy’ for businesses comes into effect on 6 April 2017. 

All employers with an employee pay bill of more than £3 million each year will be required to pay the levy. Qualifying businesses will have to make their first levy payment in May 2017.

Why is the levy being introduced?

The levy is being introduced as part of the UK Government’s drive to train three million new apprentices by 2020 and to increase the focus on employee training outside the workplace. 

The money collected from the levy will be allocated to a new digital apprenticeship service account.

Who will have to pay the levy?

As an employer, you will have to pay the apprenticeship levy each month if you:

  • Have an annual pay bill of more than £3 million or,
  • Are connected to other companies or charities which have a total annual pay bill of more than £3 million

N.B. the definition of connected companies and charities is that two companies are connected if ‘one of them has control of the other or if both are under the control of the same person or persons’.

Connected groups of employers can only use one £15,000 levy allowance. Where your company is part of a connected group, you will need to decide what proportion of the levy allowance each employer in the group will be entitled to. This decision must be made at the beginning of the tax year and will be fixed for the entire tax year.

How much will I need to pay?

Employers with an annual pay bill of more than £3 million will need to spend 0.5% of their total pay bill on the apprenticeship levy, minus the £15,000 annual levy allowance. If your total pay bill is less than £3 million per year you do not need to pay the levy.

To work out how much you will pay you need to:

Calculate your total pay bill – this is made up of the total of your employees’ earnings including wages, bonuses, commissions and pension contributions. Other payments to employees such as benefits in kind (company cars, health insurance, travel expenses and childcare) are not included in the calculation;

Work out what 0.5% of your total pay bill is;

Subtract the £15,000 allowance.

Example

Total wage bill of £5,000,000

Levy sum: 0.5% x £5,0000,000 = £25,000

Subtract levy allowance: £25,000 - £15,000 = annual levy payment of £10,000

How will the apprenticeship levy be collected?

You will report and pay your levy to HMRC through the PAYE process along with Income Tax and National Insurance Contributions. 

Each month you will need to:

  • let HMRC know whether you need to pay the apprenticeship levy;
  • include your levy payment in your usual PAYE payment to HMRC by the 19th day of the following month (or the 22nd if you report electronically).

How will the levy be used?

In general, employers in England who have paid the levy will be able to access the new digital apprenticeship service account. Here you will be able to reclaim your levy contributions as digital vouchers which can be used to pay for apprenticeship training and assessment with approved providers and to post apprenticeship vacancies.

Adult education is a devolved power and therefore matters will operate differently in Scotland, Wales and Northern Ireland. This area has been a devolved power in Scotland for a number of years and so apprenticeship funding will continue to be administered by Skills Development Scotland through contracted training providers and direct employer contracts. The fund will therefore be used to provide employers with workforce development training to help them upskill and reskill their workforce. The fund also aims to increase modern apprenticeships to 30,000 a year by 2020. If you are unsure whether you will need to pay the levy or would like further help and advice, please do not hesitate to get in touch. 

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