Q: I have seen a lot in the news about the new apprenticeship levy. However, I am little confused by what it all means. Please could you provide clarification?
A: The government has long intended to create 3m apprenticeships by 2020. The apprenticeship levy, from 6 April 2017, is one of several initiatives designed to help reach this target.
The levy will be used to fund apprenticeships and government guidance has recently been issued giving more details on how the levy will work.
The levy affects all employers operating in the UK with an annual pay bill of more than £3m. The pay bill will be calculated on the total amount of earnings subject to Class 1 secondary National Insurance contributions.
Earnings are defined as including any remuneration or profit coming from employment such as wages, bonuses and commission payments.
The yearly amount of the levy is 0.5 per cent of the annual pay bill. The government is introducing a £15,000 allowance, which will be deducted from the 0.5 per cent calculation. The levy allowance operates on a monthly basis, applying £1,250 per month, and will accumulate throughout the year so any unused allowance can be carried over to the next month. The government will also add a contribution of 10 per cent to the calculated levy amount each month.
Employers will pay the levy allowance to HMRC through their normal PAYE process, alongside any tax or National Insurance contributions, in their usual payments the following month. This means the first allowance amount paid to the HMRC will be on the 19 May 2017, or 22 May if reporting electronically.
The money paid towards the apprenticeship levy will be held in a digital apprenticeship service account. Employers can register to create this account from January 2017 and funds will become visible from late May 2017.
The levy amount entering the digital account will be how much employers can spend on apprenticeships, including training and assessment, in England. Employers will have 18 months from when the levy goes in to the account to use it or the funds will expire; essentially, use it or lose it.
During the first year of the levy being in force, the funds in the digital account have to be used for apprenticeship training and assessment for the business’ own workforce. The government is considering whether to allow employers to transfer 10 per cent of funds to another account from 2018 where, for example, businesses are in the same supply chain.
Peter Done is managing director of law firm Peninsula
