Apprenticeship levy – are you ready?

The government’s apprenticeship levy comes into force this spring and businesses in England should prepare for changes to their wage bill, writes Lisa Kennery.

From April 6 2017, employers with an annual wage bill of over £3m must pay the new levy, which replaces taxpayer funding of apprenticeships. It will generate £2.5bn per year to spend on apprentice training.

The pay bill is made up of the total amount of your employee`s earnings that are subject to class 1 national insurance

Theses earnings are made up of:

  • wages
  • bonuses
  • commissions
  • pension contributions

They exclude benefits in kind, such as company cars, healthcare and childcare.

The levy is set at 0.5% of a company’s total wage bill and is paid to HMRC through PAYE, changing the process for calculating payroll. The levy due will vary dependant on the bill each month.

All eligible companies will be given a £15,000 offset allowance. Therefore, an employer with an annual wage bill of £5m will spend £10,000 a year on the levy:

  • Levy sum: 0.5% x wage bill of £5m = £25,000
  • £25,000- £15,000 allowance = £10,000 annual levy payment

Groups of companies with more than one PAYE scheme will only receive one offset allowance of £15,000. Levy payments are placed into a digital account which employers can access to pay for training for apprentices appointed after April 2017. It will be determined by employers how to split the allowance between those companies.

As an incentive for businesses to start apprenticeship schemes, the government automatically tops up the levy payment by 10% so employers get more out than they put in.   

Levy funds will remain in the account for 24 months before expiring, encouraging businesses who don’t currently offer apprenticeships to establish a training scheme.

Once the levy comes into force, employers will have to inform HMRC if they are eligible. Businesses with a lower but increasing wage bill, should monitor their payroll and alert HMRC once it reaches £3m.

The levy should be paid to HMRC as part of your usual PAYE payment by 19th of the month, or 22nd if paying electronically.

The changes will also help smaller businesses who aren’t eligible to pay the levy. The government will pay 90% of the apprentice training costs through co-investment, leaving them to pay the remaining 10%.

Businesses with fewer than 50 members of staff will receive 100% funding from the government if they recruit a 16 to 18-year-old apprentice. This will run until at least 2018 when the government will issue further advice.

The full technical details of the apprenticeship levy are yet to be finalised and once confirmed it will inevitably raise further questions for employers.

The levy will undoubtedly increase the burden of administration for eligible companies. This is something that Pierce Chartered Accountants can help you with. For more information and for the latest updates on the apprenticeship levy, contact Lisa Kennery.