Apprenticeship Levy – a new payroll tax to fund learning?

With your remit to protect and improve the bottom line for your organisations, you will no doubt be aware of the introduction of the Apprenticeship Levy from April 2017.

Jill Whittaker FCA, Managing Director of HIT Training, states the case for immediate action.

“The Chancellor has announced that apprenticeships will be funded through a compulsory levy from next April and HIT Training – leading provider of apprenticeship training across the hospitality sector – has already laid a lot of the groundwork to prepare employers for this event. Any company that has an annual pay bill of more than £3m will be affected.

“The Government’s definition of pay bill goes further than simply the company payroll and includes all earnings subject to Class 1 secondary NIC.

“The levy is a payroll tax on UK employers that has been set at 0.5% of your pay bill and will be paid monthly through PAYE. Each month that your pay bill exceeds £250,000 (annualised £3m), the levy will need to be deducted. This may mean that even for a relatively small company with a pay bill of £5m, the accumulated fund could exceed £10,000 per year.

“To add value to the fund, the Government will apply an additional monthly 10% top-up. And if your total pay bill is eventually below the £3m threshold, any levy deductions will be reimbursed. The levy is an allowable expense against corporation tax.

“Levy payments can be used to fund apprenticeships across your organisation, not just for new entrants. A staff progression programme that promotes employees into more senior positions can be framed around a management apprenticeship, or a higher or degree apprenticeship.

“Levy funds can only be used for apprenticeship training and assessment with an approved training provider and assessment organisation, so it is important that you engage with an industry specialist without delay. Planning a company-wide strategy now to maximise the value of your fund is essential.

“Furthermore, there is additional urgency to make use of currently available apprenticeship funding. Until April 2017 you can still utilise fully-funded and part-funded apprenticeship frameworks under exiting arrangements. This option is particularly interesting for companies that have a pay bill either below or just above £3m, as this relatively unlimited funding will disappear from April 2017 to be replaced by the levy or employer cash payments.

“As a further incentive to companies who choose to employ apprentices under the age of 25, from April 2016 employer’ Class 1 NIC will no longer need to be paid on earnings up to the UEL. This could mean a saving to your company of between 10.4% and 13.4% on earnings above £8,000 for each apprentice that your company employs. This is equivalent to an employer’s NIC saving of £1,380 for a full-time member of staff on £18,000 per year.

“Whilst initially seen as a burden to business, the apprenticeship levy will bring with it many benefits to both small and large companies, not least as an incentive to utilise a ready-made learning fund to provide skills development at all levels. Used wisely, your fund will become a cornerstone of your staff retention and management development programme, creating financial efficiencies, improving performance and ultimately driving profits. But you must act now to make the most of the transition.”

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