Apprenticeship Levy – what you need to know

Rebecca Ireland, a partner at law firm Blake Morgan specialising in employment matters, looks at the costs and potential benefits of the Apprenticeship Levy

Any employer with a wage bill of £3m or more will be affected by the Apprenticeship Levy, although it appears many businesses are still unaware of its existence.

The levy came into force on 6 April, so getting to grips quickly with the legal framework to comply with the new regulations is vital. The key point is that employers who had a wage bill of £3m or more in the previous tax year, or expect to do so in a tax year commencing on or after 6 April, must notify HMRC of their levy liability. This amount is 0.5% of the wage bill, less an allowance of £15,000. The levy must be paid at the same time as PAYE payments, in monthly instalments.

‘Connected’ companies with a combined wage bill of £3m or more will be liable to pay, with one £15,000 allowance between them. They must notify HMRC on how to divide the allowance.

Anti-avoidance provisions prevent companies from moving a payroll liability into a different tax year to avoid the levy or gain an advantage. Employers are not allowed to recover the cost of the levy from employees.

Levy-paying companies in England can register for the online ‘apprenticeship service’, which opened on 13 February. This is a digital account with the levy funds available to pay for apprenticeships (funds not used within two years will be lost). The government will top up the employer’s payments by 10%.

The digital service only applies to England, as Wales, Scotland and Northern Ireland will decide separately how to spend the levy.  In Wales, for example, there will be no digital service and the proceeds of the levy will be spent in accordance with priorities identified by the Welsh Government.

One major criticism is that employers in England will not see any return on the levy unless they spend it directly on apprenticeship courses via registered providers. The levy cannot be used to cover management time and other resources spent helping apprentices.

Bakeries that can engage apprentices through these schemes (requiring 20% off-the-job training) stand to benefit, but if they cannot – or cannot engage enough to use up the levy fund – the levy will simply amount to a tax.

Because the levy can only be spent on apprenticeships, there is also a concern that other training provided by employers will be scrapped and/or rebadged as apprenticeships in order to make use of the levy.

Employers with the resources and who will benefit from apprenticeships may register as providers themselves. Others may restructure graduate training schemes, for example, to ensure they count as apprenticeships.

The Apprenticeship Levy may not be welcomed by many in the baking industry because it comes at a time when other costs are about to kick in or increase, such as the Immigration Skills Charge and National Living Wage.

While small- and medium-sized bakeries may well be breathing a sigh of relief that they fall outside the Apprenticeship Levy bracket, it is important to note that, for all bakeries and food manufacturers in England, funding changes will apply to apprenticeships that start on or after 1 May.

Non levy-paying bakeries (or levy-paying employers who want to spend more than their levy contribution) will be able to engage apprentices through the National Apprenticeship Service and will have to ‘co-invest’ only 10% of the cost, with the other 90% met by the government.

New allocated funding bands, dependent on the relevant Apprenticeship Standard (or Framework), will also set the maximum the government will pay towards that apprenticeship.

Employers with fewer than 50 employees will not have to ‘co-invest’ for 16- to 18-year-olds, or 19- to 24-year-olds who have been in care or with a Local Education Authority Health and Care plan. In some cases, an additional 20% funding will be available to adapt to the new funding model.

Many organisations in the sector have been planning how to utilise their levy funds effectively for some time. If you are not one of them, it is not too late. We suggest you start by looking at the future use of apprentices as part of your wider business and recruitment planning.

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