The government recently published draft legislation introducing an apprenticeship levy which is expected to come into force on 6 April 2017. In this article we look at the impact on employers.

What is the apprenticeship levy?

In last year's budget, the government announced its intention to introduce a levy on large employers in order to fund 3 million new apprenticeships in England by 2020. This was part of its commitment to developing vocational skills and to increasing the quantity and quality of apprenticeships.

The government carried out a consultation on the proposed levy in the autumn last year, following which it has now published draft legislation.

The levy is effectively a new tax which will be available to employers to fund apprenticeships.

The levy will be payable by all employers (companies, charities etc.), in all sectors, across the whole UK. The levy will be collected through Pay As You Earn (PAYE) and will be payable alongside income tax and National Insurance.

In England, control of apprenticeship funding will be put in the hands of employers through the Digital Apprenticeship Service. 
How much will it cost employers?

The levy will be set at 0.5% of an employer's paybill. However, all employers will then receive an annual allowance of £15,000 to set-off against the levy, in effect making the levy payable only to the extent that the employer's paybill exceeds £3 million per year. This means that fewer than 2% of employers will pay any levy at all.

How will the levy be calculated?

To keep the process as simple as possible 'paybill' will be based on total employee earnings subject to Class 1 secondary NICs but not including benefits in kind. The policy intention is that employers will calculate and pay the levy on a monthly basis.

Funding for training will be accessible to all employers in England via the Digital Apprenticeships Service. Employers who pay the levy will be able to access more funding than they have put in, through government top-ups. However, any levy funding which is not used within two years will expire, making it available for other employers.

What does this mean for employers?

  • For some larger employers, the new levy will be an additional cost which will not be fully recoverable through the annual allowance.
  • Where two or more companies are connected with one another, only one company will be entitled to the annual allowance to be offset against the apprenticeship levy. Therefore large groups may be paying out more than they can recover, impacting on cost and growth.
  • There will also undoubtedly be some increase in administration costs for employers which will vary depending on the size of their paybill.
  • As a result, in the short term the levy is likely to increase costs and impact on business growth.
  • There will be detailed record keeping requirements for employers to get to grips with.
  • There will also be uncertainty for employers in Scotland, Wales and Northern Ireland as apprenticeships are a devolved matter in those countries. Whilst employers in the whole of the UK will have to pay the levy, the government is currently liaising with the devolved administrations over their arrangements for giving employers access to the funding itself.