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13 April 2016
Who will have to pay?
How much is the levy?
Are any reliefs available?
How will the levy be administered?
Are there any anti-avoidance provisions?
Ensuring it works in practice
How flexible will the fund be?
What does this mean for employers?
The government is committed to boosting productivity by increasing the quantity and quality of apprenticeships. To this end, it aims to create three million apprenticeships by 2020 and introduce new apprenticeship standards. From April 6 2017, employers with a wage bill of more than £3 million will pay an annual levy of 0.5% to help to fund the initiative. Details of how the levy will be collected have been set out in draft legislation. However, details of how employers will be able to use and access the fund remain unclear and are subject to further consultation.
The levy will apply across all sectors to all employers in the United Kingdom with a gross wage bill in excess of £3 million. The government estimates that less than 2% of employers in the country will pay the levy.
The levy will be charged at a rate of 0.5% of an employer's total gross UK wage bill (excluding benefits in kind). This is the total amount of all employees' earnings subject to Class 1 secondary National Insurance contributions, but ignoring the employer National Insurance contribution thresholds. For example, this will include the earnings of employees under the age of 21 and apprentices under the age of 25, even though no employer National Insurance contributions are payable on those earnings.
Each employer that pays the levy will be entitled to a £15,000 allowance to offset it and, as announced in the 2016 Budget, a 10% top-up to their monthly levy contributions which will be available for them to spend on apprenticeship training. Employers that operate more than one payroll will be entitled to claim only one allowance and group companies will be entitled only to one allowance – it will be up to the group to decide which company should receive it.
From April 6 2016, employers will not pay National Insurance contributions on the earnings of apprentices under the age of 25 up to the upper earnings limit (for 2016-2017, £827 per week).
Employers will pay and report the levy on a monthly basis under pay-as-you-earn (PAYE) real-time information, alongside PAYE payments and National Insurance contributions.
Employers will need to keep records in respect of the levy for a certain period of time and make returns. Employers that fail to do so will be liable to a penalty of up to £3,000 per tax year.
There are comprehensive anti-avoidance measures designed to catch arrangements which attempt to circumvent the levy. Any arrangements designed to reduce the total wage bill below £3 million are likely to be caught (eg, deferring payment of wages or bonuses from one tax year to another or encouraging employees to work through personal services companies).
Although draft legislation on the levy was published in February 2016, the details of how it will work in practice remain unclear. However, key points are as follows:
There is little information on how the government will oversee the quality of apprenticeships. The government says that it wants to ensure that the fund is used only to sponsor "high quality apprenticeships". In implementing the new system in England, the government is looking to take a standards-based approach to ensuring the quality of apprenticeships. The previous frameworks were criticised as not being sufficiently rigorous or responsive to employers' needs. To tackle this, the development of around 350 clearer, more concise standards is being led by a group of 'trailblazer' employers. This will provide a selection of approved training providers for each type of apprenticeship and funding will be available only for these approved providers. Apprenticeships will be available up to the highest level, with universities working with employers to deliver new 'degree apprenticeships' in professions such as law, software development and accountancy.
The government will establish the Institute for Apprenticeships by April 2017, which will be a new, independent body led by employers to regulate the quality of apprenticeships and decide the cap on funding available for each type of apprenticeship. Higher-level apprenticeships (degree level and postgraduate study) and apprenticeships for school leavers (aged 16 to 18) are likely to be eligible for increased funding.
Public funding will gradually be withdrawn from framework apprenticeships from 2017, as employers take on apprentices through the standards-based system.
It is also intended that in Spring/Summer 2016 the word 'apprenticeship' will become a protected term to ensure that it cannot be misused by education and training providers.
It is clear that the new apprenticeships system will be introduced gradually and is intended to work with the old system until it can be replaced entirely. The government is yet to make a number of key decisions about how the levy itself will work, who will have access to funding and how much they will receive. However, some key implications are as follows:
For further information on this topic please contact Abi Frederick or Victoria Goode at Lewis Silkin by telephone (+44 20 7074 8000) or email (email@example.com or firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkinemployment.com/en-gb/.
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