Employers need to face up to Apprenticeship Levy obligations - and opportunities

25 May 2016

Simon Adams

Since the Apprenticeship Levy was first announced in the Summer Budget of 2015, employers’ representatives have been concerned that the gradual release of details indicates a hastily thought out policy. The CBI and the EEF are just two of those to have renewed calls for a re-think, although with no sign of a Government u-turn on this issue, businesses must plan ahead.

First of all employers need to understand how this extra cost will work – the levy will be 0.5 per cent of an employer’s pay bill (this includes salary, bonuses, commissions, and share awards, along with anything else where NICs are charged), collected under PAYE. A £15,000 credit can be available to offset the liability, and so this means that a stand-alone employer paying less than £3m per annum need not worry.

However, technical provisions dealing with connected parties mean this £3m levy allowance is on a per group basis. It is expected that connected companies will be allowed to choose between them how much of the allowance each employer in the group will use, although exactly how that will work practically remains one of the areas where additional HMRC guidance is needed. This is likely to create some confusion (group companies will need to make a decision before each tax year to decide who gets to benefit from the allowance, and how much).

Some recent clarifications have soothed concerns but not extinguished the sense that this is a means to an end with inadequately considered details rather than something more considered. For instance, there were unanswered questions over how the transfer of employers’ NICs to employees in certain circumstances might be governed by the rules (although the proposed abolition of this formal election seems to be the heavy handed solution), and also how this is going to impact the affected employers for VAT purposes. Many employers will feel that this is a stealthy way of raising NICs. The Government is committed to three million new apprenticeship roles by 2020, but are currently off the pace. This is therefore the latest method of encouragement and funding for the costs of training, working alongside the employers’ NIC abolition for apprentices under 25, to raise numbers and hit the target.

So once everyone has understood how much extra money will be withheld, the next step for employers will be to work out the costs and benefits. It is promised that those employers that take on apprentices could be in a position to take back everything they paid, and then some. Each employer’s levy goes into a dedicated account, topped up by 10 per cent from the Government and those employers who don’t use their levies, and can then be used to fund apprenticeship training and assessment. This is subject to the training provider being approved and the Government funding bands (still to be announced).

Add to this that those funds will expire after 18 months if left unused and it becomes clear that there’s an awful lot for employers to be thinking about. And don’t forget that as a devolved policy the provisions could be different depending on where the employee lives.

Have employers enough time to get their systems and processes in order for this new regime and change their training methods to benefit from the fund? Considering the above they could even start to sympathise with those dissenting voices. As always, further clarification from the authorities is welcome!

For more information please get in touch with Simon Adams, or your usual RSM contact.