From April 2017 major changes will be introduced to the way in which the government funds apprenticeships. These changes will be known as The Apprenticeship Levy.
Some employers will now be required to contribute and there will be changes to the funding for apprenticeship training.
This will be especially relevant to organisations that have a payroll of more than £3m, as they will be required to make a payment of 0.5% of any staff costs above this threshold.
The levy payment is held in an account and is available for organisations to spend on accredited apprenticeship programmes within an 18-month period.
Each employer has access to their own account and any levy contributions which remain unused at the end of the 18 months will be removed and used more generally to fund apprenticeships.
Key facts about the apprenticeship levy at a glance
- The amount of payment required for the apprenticeship levy will be 0.5% of your payroll bill (when this bill is over £3m) paid through PAYE.
- Organisations with a payroll below the threshold will not have to pay the levy.
- Payments, once collected, will be stored in a digital account and can be redeemed via approved apprenticeship schemes.
- The apprenticeship levy cannot be used for additional expenses, overheads and wages.
- Levy payments must be used within 18 months.
- For every £1 paid in levy payments, employers will be given an additional 10p by the government, paid into their digital account.
- Organisations not paying the levy, will continue to receive government support. This will be migrated to a digital account from 2018.
Will I have to pay the levy?
The apprenticeship levy applies to all organisations based in the UK and if your payroll exceeds £3m you will have to pay the levy.
For the purposes of calculating your levy payment, payroll is considered to be the total employee earnings subject to class 1 secondary National Insurance Contributions (NICs).
There are no exemptions from paying the levy if you are above the qualifying amount and organisations based in all four countries of the United Kingdom will have to pay.
How much will I have to pay?
Employers will receive a fixed annual allowance of £15,000 to offset against the 0.5% levy payments, meaning any organisation with a payroll of up to £3m will not have to pay the apprenticeship levy.
If your payroll is above £3 million the allowance is not enough to offset the levy liability, therefore payment will be required.
How is the levy payment collected?
The levy payment will be taken monthly through the Pay as You Earn (PAYE) process alongside tax and National Insurance Contributions (NICs).
You are responsible for declaring the monthly amount that you must pay, the month after you have calculated the liability.