The United Kingdom has announced a recent regulatory change that has an impact on payroll. In April 2017, the way the government funds apprenticeships, in the United Kingdom, is changing. Some employers will be required to contribute to a new apprenticeship levy, and there will be changes to the funding for apprenticeship training for all employers.
What is Apprenticeship Levy (AL)?
The apprenticeship levy is part of the UK Government’s plan to increase apprenticeships. It is a new tax which wants to fund 3 million new apprenticeships in England by 2020. The primary goal is that the new levy should help to improve both the quantity and quality of apprenticeships, effective April 2017.
Who is affected?
Any employer, in any sector across the UK, with a pay bill (total amount of earnings subject to Class 1 secondary NICs) of more than £3 million each year. For the purposes of the levy, an ‘employer’ is someone who is a secondary contributor, with liability to pay Class 1 secondary National Insurance contributions (NICs) for their employees. Additionally, Self-certification is required if pay bill is under £3m for a whole tax year. It is important to beware of fluctuating earnings (overtime, bonuses) as they may trigger AL eligibility.
What will the Levy Cost?
Employers will pay the levy, on their entire pay bill, at a rate of 0.5%. However, a levy allowance of £15,000 (for each tax year) can be offset against it. Therefore, this means that that the levy is only payable on pay bills of more than £3 million a year (0.5% x £3 million = £15,000). The Levy allowance will operate on a cumulative basis, meaning monthly allowance of £1,250 can be carried forward, and any unused allowance may be offset against other PAYE liabilities. Part-year companies will still receive the full allowance.
Example I: An employer with an annual pay bill of £5,000,000:
- levy sum: 0.5% x £5,000,000 = £25,000
- levy sum: 0.5% x £5,000,000 = £25,00
- subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment.
Where a group of employers are connected, they will only be able to use one £15,000 levy allowance. The levy is also allowable as a deduction for Corporation Tax.
Example II: 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
Reporting and Paying the Levy
Employers (via their payroll provider) will calculate, report and pay any levy due to HMRC, on a monthly basis, through the normal PAYE process alongside tax and NICs (then paid by 19th/22nd of the following month). Therefore, the first submission in which employers will declare that they will pay the levy will, therefore, be in May 2017. HMRC will update EPS with new Apprenticeship Levy fields. Currently, payroll software is being updated throughout the UK to account for this new levy. Further detail on how this will be reflected on your payroll register should be advised by your payroll provider.
Accessing and Spending Apprenticeship Funding – DAS
From January 2017, companies can register to create a digital bank account to hold all Apprenticeship Levy funds paid over and top up funding. Funds will be credited to that account after each remittance (22nd monthly) and can only be used to pay for apprenticeship training and assessments and not for salary or wages. Employers will be able to pay for apprenticeship training and assessment via this service. The funds can be used for in-house, college or outsourced training.
DAS – Digital Apprenticeship Service – is currently under development and will be rolled out at first to companies in the England (Separate arrangements will be put in place in Scotland, Wales and Northern Ireland) who pay the AL. DAS is planned to be available to all companies in England over the next year.
DAS account can be used for:
- select an apprenticeship framework or standard
- choose the training provider or providers they want to deliver the training
- choose an assessment organization
- post apprenticeship vacancies
Topped Up Funding
The Government will apply a 10% topped-up to the fund’s employers have for spending on apprenticeship training in England, meaning for every £ that enter an employer’s digital account to spend in England on apprenticeship training, an employer will actually get £1.10.
How long are the Funds Available to Employers?
Funds will expire 18 months after they enter an employer’s digital account unless an employer spends them on apprenticeship training. The digital account will let an employer know in good time when any funds are due to expire so that they can arrange to spend them if they wish.
What about Employers not paying the Levy?
If an employee is not liable to pay the levy, they will still get a government contribution to the training and assessment of their apprentices. They can also use the digital apprenticeship system to find a provider that offers the training required for their apprentices.
What about Apprentices in Place before April 2017?
Apprentices that have been accepted on to an apprenticeship program prior to 6 April 2017 will be funded for the duration of their apprenticeship under the same terms and conditions in place when it commenced.
For more Information
The National Apprenticeship Service is available to assist with levy queries and recruiting apprenticeships.
or free phone 08000 150 600 rules
Employer alerts are provided by Kira Rubiano, Sr. Partner Management Specialist – Europe/Asia Pac.