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New Apprenticeship Levy

May 1st, 2016

The Government has published draft legislation introducing an apprenticeship levy, which is expected to come into force in April 2017. This has been somewhat overshadowed by the impending EU in/out referendum, but it is worthy of attention. 

What is the levy and how much will it cost? 

The apprenticeship levy forms part of the Government’s plan to create 3 million new apprenticeships by 2020. 

The draft legislation confirms that employers with an annual wage bill of more than £3 million will have to pay a levy of 0.5% to fund apprenticeships. This will be payable through PAYE, alongside income tax and National Insurance. It is effectively a new tax which will be payable by employers to help fund apprenticeship training and is expected to raise £3 billion a year by 2019-2020. 

All employers will receive an annual allowance of £15,000 (paid in vouchers) to set off against the levy. In effect, it is expected that fewer than 2% of employers will pay any levy at all. However, employers who operate multiple payrolls will only be able to claim one allowance.  

In return, funding for training will be accessible to all employers via the Digital Apprenticeships Service and those employers who have paid the levy will be able to access more funding than they have put in, through government top ups. 

The Government is also offering additional incentives to recruit apprentices and from 6 April 2016, no employer will pay Secondary Class 1 National Insurance contributions for apprentices under 25 up to the Upper Earning Limit. A grant of £1,500 is also available to small employers taking on apprentices aged 16 to 24. 

It is intended that increased productivity brought by apprenticeship training will increase profitability for businesses by boosting the quality and quantity of apprenticeships and that more employers will consider taking on apprentices. 

What does this mean for employers? 

For some large employers, the new levy will be an additional cost, which will not be fully recoverable. There will also be inevitable administration costs for employers, which is likely to impact on growth and cost (initially).   

As it currently stands, the new apprenticeship levy will be payable in addition to any existing training levy in particular industries (such as construction or engineering). However, there are  consultations taking place between the Construction Industry Training Board (CITB) and employers and also between the CITB and the Department for Business, Innovation and Skills on whether the existing training levy should continue and if so, what level it should be. This will hopefully be clarified before the new levy comes into effect. 

Undoubtedly, this levy will support the creation of more opportunities for the young and will be seen by many as a positive step.

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