The apprenticeship levy is great news for the logistics sector, where skills shortages mean that investment in developing talent amongst younger workers is crucial to the future workforce.
The Government has committed to the introduction of an additional 3 million apprenticeships by 2020, as well as introducing a new institute to set standards and ensure quality. This will be funded through the new apprenticeship levy, which will be introduced in April 2017.
What is the levy and will it apply to my business?
The levy is a new tax which will be charged to all public and private sector employers at a rate of 0.5% on an employer’s annual pay bill, where this is above £3million, regardless of whether the company employs apprentices or not. This is expected to raise £3bn for direct investment in apprenticeships, and can be accessed by employers for training using electronic vouchers.
As an employer you will have an annual allowance of £15,000 – which means in reality you are only making levy payments when your pay bill exceeds £3m (since the 0.5% of £3m = £15000, is returned to you).
What is included in the pay bill?
For the purpose of the levy, employer’s pay bills will be made up of all earnings subject to Class 1 secondary National Insurance Contributions (NIC). Earnings below secondary threshold will also be included in the pay bill (even though such earnings are not counted when calculating an employer’s NIC). This means earnings, bonuses, commissions and pensions will be included in the calculation as to whether the levy applies. Anything subject to Class 1A or Class 1B NIC, for example benefit in kind, will be disregarded.
How will the levy be collected?
The levy is a payroll tax so will be collected through the PAYE system.
The annual allowance will apply on a monthly basis, at a rate of £1250 a month. Any unused allowance can be carried forward. In addition if you have an unused allowance, but have paid the levy in the previous tax year, you can receive a credit to offset other PAYE liabilities.
It is also important to remember that the levy is an allowable expense for corporation tax.
How will the levy benefit my business?
Employers in England who pay the levy and participate in apprenticeship programmes will receive more than they pay into the levy, through a monthly 10% top-up to their digital account. Clearly this provides an incentive for you to employ apprentices.
Employers using in-house training or self-funded schemes would need to switch to an approved trainer or risk losing out financially.
For those apprentices who have been accepted onto a training programme before the levy comes into force, funding will continue under the terms and conditions in place at the time. Funding of apprentices accepted post April 2017 will differ for levy paying employers and non – levy paying employers:
- Levy paying employers
It’s good news if you are paying the levy, as you can receive back more to spend on training than you pay in. Employers in England will be able to create a digital account, which the government will credit with funds to spend on apprenticeship training. Levy funds must be spent within 18 months of being deposited and funds must be spent on apprenticeship training and assessment with approved providers.
Employers in Scotland, Wales and Northern Ireland have their own apprentice authorities
- Non-levy paying employers
If your annual pay bill is less than £3million, you will be required to pay a proportion of the costs of apprenticeship training to the training provider directly. The government will pay their proportion directly too. It is expected that the digital system will be introduced for non-levy paying employers in 2018 or 2019.
How will the levy affect group companies?
If you are part of a group you will only benefit from one annual allowance. Group companies must decide how they wish to share this allowance at the start of a tax year, although if any is unused, it can be offset against other PAYE liabilities at the end of the year. Group companies will be able to share one digital account.
- If, like many businesses in the transport industry you already have apprenticeships in place, in future you will be able to get back what you pay through the levy. However, be aware that from 2017 you, rather than the provider, will be responsible for managing costs.
- If you haven’t previously employed apprentices, this is clearly a great opportunity to capitalise on the investment available to ensure you develop a workforce with the necessary skills for the future.
- You will need to consider the roles suitable for apprentices, particularly where the greatest skills shortages lie; drivers, fleet managers and engineers. And apprenticeships do not necessarily just need to be entry-level; training to up-skill staff to managerial level may qualify.
- Where it is felt that there is a need for very specific training, under the employer led ‘Trailblazer scheme’ similar employers can come together to develop their own apprenticeship standards in partnership with training providers such as colleges. Newly-agreed logistics Trailblazer apprenticeships (which UKWA members have been involved in) will ensure apprenticeship standards for the logistics industry will be fit for purpose.