Apprenticeship Levy
The Apprenticeship Levy was introduced in April 2017. This section will help recruitment businesses understand more about the practical steps they need to take to pay the levy and will also provide further information about the levy itself.
A new Apprenticeship levy flowchart has also been designed to help recruiters understand their liability to pay the levy.
What is the apprenticeship levy?
The apprenticeship levy is a government scheme which will come into effect in April 2017, the first levy payment being due in May 2017. Under the scheme, employers make a financial contribution towards the cost of funding apprenticeships in the UK. It applies to employers who operate in the UK in any sector. The levy is not related to whether the employer employs any apprentices. Importantly "employer" does not mean employer from an employment law perspective - rather it means a business with a liability to pay Class 1 secondary National Insurance Contributions i.e. "employers' NICs".
Levy calculation: The levy will be calculated at a rate of 0.5% of the employer's annual pay bill (as reported via Real Time Information). However there will be an allowance of £15, 000 which in practical terms means that only businesses with a pay bill of more than £3 million will be liable to pay the levy (see below for an example of how this will work).
Payments to temps/agency workers: The issue for recruiters is that payments to temps/agency workers are included when calculating the pay bill, where the employment business payrolls those temps/agency workers directly (rather than through another entity such as an umbrella company or a personal services company)
Example 1: an employer who would pay the levy
An employer with an annual pay bill of £5,000,000:
- levy sum: 0.5% x £5,000,000 = £25,000
- subtracting levy allowance: £25,000 - £15,000 = £10,000 annual levy payment
Example 2: an employer who would not have to pay the levy
An employer with an annual pay bill of £2,000,000:
- levy sum: 0.5% x £2,000,000 = £10,000
- subtracting levy allowance: £10,000 - £15,000 = £0 annual levy payment
Importantly both the levy liability and the levy allowance will be calculated on a monthly cumulative basis. This means that a business may find that it is liable to pay the levy in some months even though overall its annual pay bill will not exceed £3 million. Offsetting provisions will correct this by giving credit against other PAYE liabilities. See more examples in HMRC guidance for software developers.
The levy will be allowable for corporation tax purposes.
How to pay the apprenticeship levy?
The levy will be paid to HMRC through the PAYE process. Revised draft Income Tax (Pay As You Earn) (Amendment) Regulations 2017 which were published on 14 December set out the relevant detail (a consultation on those draft regulations closes on 3 February 2017). The regulations will add a new Part 7A (Apprenticeship Levy) (sections 147B to 147J inclusive) to the Income Tax (PAYE) Regulations 2003.
The draft regulations set out the following:
- A definition of the “monthly bill” for the purposes of calculating the levy.This is earnings subject to secondary class 1 national insurance contributions i.e. employers’ NICs. HMRC guidance for software developers states that this includes:
(a) basic pay, overtime, commission,
(b) some but not all pensions contributions, earnings of employees aged 16 to 21 and apprentices under 25 even though employer NICs are payable at a rate of 0%
However it does not include:
(a) Earnings of employees aged under 16,
(b) Earnings of employees not subject to UK NICs legislation,
(c) Earnings disregarded for NICs purposes e.g. some pensions payments,
(d) Earnings of employees working abroad and paying only employee NICs,
(e) Benefits in kind liable to Class 1A NICs
(For detailed advice on what payments are included or excluded please speak with your payroll team or HMRC).
- The due date for the levy (it is payable monthly, either 14 days after the end of the tax month or 17 days where the business pays HMRC electronically).
- Reporting obligations.
- How to allocate one levy allowance across different PAYE references. An employer may have more than one PAYE reference, however it will have only one levy allowance of £15,000 per annum. The allowance can be split across the different PAYE references but the employer must tell HMRC in advance it is doing this.
- How to calculate the levy in April 2017 (for payment in May 2017) and then in subsequent months (both the levy itself and the levy allowance of £15,000 are calculated on a monthly cumulative basis).
- How to recover overpaid levy (relevant for example if your workforce fluctuates in number because of seasonal requirements. This may mean that you pay the levy in some months, even though your pay bill will not exceed £3 million for the year. The PAYE system will account for this over the tax year, and will reduce your other PAYE payments as necessary).
What funds can I access under the apprenticeship levy?
Digital accounts: Businesses that pay the apprenticeship levy will have a “digital account” – levy funds will go into the account which can then be used to pay for training and assessment for apprentices. Importantly funds can only be spent on training from a government-approved training provider. Although an employer will still be required to pay the apprenticeship levy in full, the digital account means that the money it pays under the levy can be used to fund training apprentices for its own business. The Government will top up the digital account funds with an additional 10%. Funds will expire 24 months from the date they enter the account if they have not already been spent on apprenticeship training with an approved training provider.
However, the “digital account” system will apply only in England. Apprenticeships are devolved to the Welsh Assembly, Scottish Parliament and Northern Ireland Assembly. If you operate in England and another part of the United Kingdom, the government proposes to calculate the proportion of your pay bill that relates to workers in England. That sum will be transferred to your digital account for you to spend on training and qualifications for your apprentices in England. The levy paid in respect of people living in Wales, Scotland and Northern Ireland will be made available to the devolved legislatures. At the time of writing (January 2017) we do not know how the devolved authorities will use the levy funds. To determine where people live, HMRC will use the information provided by you using the Real Time Information system.
Co-investment: If a business does not pay the levy because its pay bill is below the threshold (and therefore it does not have a digital account), it will still be able to access levy funds to train apprentices. The Government has agreed that where a non-levy paying business pays 10% of training costs, the Government will pay the remaining 90%. This is called “co-investment”.
Restrictions on use of levy funds: A key issue for employment businesses is that it will be difficult for them to access their own levy funds (except for internal staff) because of the restriction of using those funds only for apprenticeships which meet the following criteria:
- The apprentice must be employed in a "real" job (may be an existing or new hire, "real" is not defined).
- They must work towards achieving an approved apprenticeship standard.
- The apprenticeship training must last at least 12 months.
- The apprentice must spend at least 20% of their time on off-the-job training.
Temporary work assignments will rarely meet the above criteria, so it will be difficult for temporary workers to become apprentices and for their supplying employment businesses to supply them as apprentices. REC continues to lobby for changes to be made regarding access to levy funds to ensure that recruitment businesses can use the significant levy funds they will contribute.
REC will keep you updated on all developments regarding the apprenticeship levy. In the meantime see the Government guidance for more detail.
How to access funds in the digital account
Businesses which pay the apprenticeship levy should register for the online apprenticeship service. This will enable them to access their digital accounts into which their apprenticeship levy will be paid. Businesses need access to the digital account in order to be able to pay training providers delivering their apprenticeships. For further details please see register for the online apprenticeship service.
Becoming an apprenticeship training provider
From May 2017 businesses that will pay the apprenticeship levy (and therefore have digital accounts) will be able to choose a provider from the Register of Apprenticeship Training Providers (RoTAP). The register opened for applications on 25 October 2016.
There are three application routes:
- main route: eligible for selection by levied employers to deliver apprenticeship training, or selection by another main provider to work as a subcontractor
- supporting route: entry route to the apprenticeship market for organisations that offer a specialism, and providers who only want to deliver as a subcontractor
- employer-provider route: employers who want to provide training to their own staff. They will have the flexibility to lead their own programme, or act as a subcontractor to their appointed main provider
Interaction with the CITB
Changes have been made to the CITB levy which will also come into effect in 2017 and which mean that more recruitment businesses will be liable for the CITB levy than was previously the case. As a result, some businesses will be liable for both the CITB levy and the apprenticeship levy. CITB have told REC that:
- They continue to look at options for how the CITB levy can work alongside the apprenticeship levy in future, through an industry-led Levy Working Party.
- They will formally consult with businesses in 2017 on a levy proposal for 2018 onwards.
- This means that for one year, some firms will have to pay both levies.
- For 2017/2018 CITB will introduce a 12-month transition package to support levy payers through the CITB Grants Scheme.
- This will include an enhancement of up to 100% to the CITB grants they claim for training. It will be capped so that no employer receives more in enhanced grant than their apprenticeship levy bill.
- Nick James (Strategic Partnerships Director (London & South)) - nick.james@citb.co.uk
- Sarah Fenton (Strategic Partnerships Director (Midlands & North)) - sarah.fenton@citb.co.uk
- Ian Hughes (Strategic Partnerships Director (Scotland)) - ian.hughes@citb.co.uk
- Mark Bodger (Strategic Partnerships Director (Wales)) - mark.bodger@citb.co.uk
How does the levy apply in Scotland?
In contrast to England, Scotland will receive block grants that will increase year-on-year, up until 2020. These grants are not additional funding but will replace the funding the Scottish Government would have previously received for apprenticeships.
Yearly period |
Population share of levy funding |
2017 - 2018 |
£221 million |
2018 – 2019 |
£230 million |
2019 - 2020 |
£239 million |
The Scottish Government aims to increase the number of Modern Apprenticeships in order to implement a total of 30,000 new starts by the year 2020. They will also increase the amount of Graduate Level and Foundation Apprenticeships during 2017-2018, create support measures to confront inequalities and structural unemployment issues and continue their Youth Employment Strategy: ‘Developing the Young Workforce’. In addition to this, the Scottish Government aims to establish a new Flexible Workforce Development Fund and implement sector-specific skills support for priority sectors including digital, care and early years to cater to employers' needs.
For more information, you can access the Scottish Government’s Response.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.