More information published about the apprenticeship levy

The much talked about apprenticeship levy will come into effect in April 2017 and will apply to employers across all sectors.  Legislation to permit the imposition and collection of the levy will be introduced in the Finance Bill 2016 and draft legislation has recently been published.

The apprenticeship levy will be payable by employers at a rate of 0.5% of the employer’s total paybill and it will be collected through PAYE alongside tax and National Insurance.  It is intended that the levy will be calculated and paid on a monthly basis.  The levy will be used to fund new apprenticeships.

In England, control of apprenticeship funding will be put in the hands of employers through the Digital Apprenticeship Service.  The Tax Information and Impact Note states “employers who are committed to training will be able to get out more than they pay”.  However, it is still unclear how employers will be able to access the funding to support their own training programmes.

Each employer will receive an annual allowance of £15,000 to set off against their payment.  In broad terms, the paybill will be calculated based on total employee earnings subject to Class 1 secondary National Insurance contributions.  There will be a connected persons rule, similar to the Employment Allowance connected persons rule.  This means that employers who operate multiple payrolls will only be able to claim one allowance.

The effect of the £15,000 allowance is that the levy will only affect employers with a paybill in excess of £3 million per year and the Government has stated that this is less than 2% of employers in the UK. 

However, even relatively small employers may be caught by the apprenticeship levy.  One example given by the Government is an employer of 250 employees, each with a gross annual salary of £20,000. This would mean an annual paybill of £5,000,000. The levy on such a paybill would be £25,000.  Once the £15,000 offset has been applied, £10,000 would still be due.

In addition to large employers, mid-sized businesses in high paying sectors, such as professional services, engineering and energy sectors are likely to be affected by the levy and will need to make provision in their budgets accordingly.

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