The way the government funds apprenticeships in the UK will change in Spring 2017. Whilst only some larger employers will be charged a new apprenticeship levy, actual apprenticeship funding will change for all employers.
What is an apprenticeship?
An apprenticeship is a genuine job, with an accompanying skills development plan. It must last for at least 12 months. The apprentice must spend at least 20% of their time on off-the-job training. The National Apprenticeship Service can provide details on how to employ an apprentice (https://www.gov.uk/take-on-an-apprentice)
What is the apprenticeship levy (AL)?
Any employer in England with an annual payroll bill of at least £3 million will have to pay the Apprenticeship Levy as part of its payroll costs in each pay period. Different rules will apply for employers in other parts of the UK.
The AL is calculated at ½% of the annual payroll, minus the apprenticeship levy allowance (ALA). This is currently set at £15,000 per annum. The amount of AL you pay will be transferred into your training levy account. You can access this to help fund any qualifying apprentices you take on.
What is the ‘annual payroll’?
For standalone employers, the annual payroll bill is all payments to employees that are subject to class 1 national insurance (NIC). This includes wages, commissions and bonuses. Benefits in kind will generally be excluded as these are
normally charged to class 1A NIC. You must also include payments to:
- All employees earning below the Lower Earnings Limit and the Secondary Threshold;
- All employees under the age of 21, but over the age of 16
- Apprentices under the age of 25.
For companies that are ‘connected’ or are in a group, you need to consider the connected companies’ or group payroll costs to see if the AL applies, and each connected company or group will have one ALA to allocate between them.
The Apprenticeship Levy will apply for the first time if the payroll bill for a standalone business, group of companies or connected companies in the previous year was more than £3 million and you expect your current payroll bill to be at least £3 million. You will also have to pay the AL if your current payroll costs unexpectedly go over £3 million.
How do I allocate the ALA if I’m part of a group or have connected companies?
The ALA of £15,000 can be allocated between all your PAYE schemes, in any way the connected companies or group determines. This will have to be reported the first time you have to pay the Apprenticeship Levy. The allocation, however, cannot be varied part-way through the tax year. You will have to wait until the start of the new year before you can change this, even if you become a connected employer or the structure of your connected companies or group changes (such as a new company joining) part way through the year. You may not carry forward any unused ALA into the next tax year.
What is a connected or group company?
You will only need to consider other companies’ payroll bills if you are part of a group or your company is connected with another company or limited liability partnership (“LLP”). Connected companies are those that are either under the control of the same company or are controlled by the same person or persons. Control of an LLP is in respect of rights to the greater part of its assets or income.
You will need to consider the position at the start of each tax year only, even if the position changes part way through the year.
When considering control, you will need to aggregate the rights of “associated” shareholders. This could be, for example, your spouse or partner, certain family members, business partners, etc. If these rights are in respect of the greater part of share capital, voting power, or to the assets in the event of the companies being wound up, and there is substantial commercial interdependence between your companies (for example, if they trade from the same premises, or one gives financial support to the other), they might be connected
Joint venture companies will generally not be connected, as no one company will typically control any other in the arrangement. The connected rules are the same as for claiming the Employment Allowance and only apply to companies. They do not apply to unincorporated businesses. The connected rules are the same as for claiming the Employment Allowance and only apply to companies: they do not apply to unincorporated businesses.
How do I calculate what I owe?
If you begin paying the Apprenticeship Levy part way through the year, you’ll need to calculate how much of your ALA you have accumulated in the current year by dividing your annual allowance by 12 and multiplying this by the number of months since the start of the year. This figure is your ALA for the first month you report the levy.
Do I still have to pay the Apprenticeship Levy if I contribute to another industry training levy?
Yes, you will have to pay the Apprenticeship Levy even if you contribute to another industry-wide training levy arrangement, such as the Construction Industry Training Board Levy.
When does the Apprenticeship Levy apply from and how will I report it?
The Apprenticeship Levy applies from 6 April 2017. You will have to tell HMRC how much you owe from that date, if your, or your connected companies’ or group’s, annual payroll bill was more than £3 million in the previous year, or if you think your, or your connected companies’ or group’s, current annual payroll bill will be more than £3 million, or
unexpectedly turns out to be more than £3 million.
Standalone employers, connected or group companies will each have to tell HMRC what AL they owe and the amount of annual ALA they have allocated to that PAYE scheme. This will need to be reported on their Employer Payment Summary (”EPS”). Nothing will need to be reported if you do not have to pay the AL in the current tax year.
How will I pay the Apprenticeship Levy?
You’ll pay the AL each month through the PAYE process. This is the same way you pay PAYE income tax and NIC. The AL is a deductible cost for corporation tax purposes, just as the rest of your payroll costs are.
Accessing your levy money by using the apprenticeship service.
Once you have declared the levy, you will be able to access funding for apprenticeships through a new apprenticeship service account. You can register for this service (https://www.gov.uk/guidance/manage-apprenticeshipfunds).
Through this service, employers will be able select an apprenticeship framework, choose a training provider and advertise apprenticeship vacancies, and to use the funds to spend on qualifying apprenticeship training. A 10% top
up will be added to your fund by the government but the funds will expire 24 months after they enter the account unless spent on qualifying apprenticeship programmes.
Groups and connected companies will pay into one service account and can be accessed by any member in the group or by any of the connected companies or LLPs. The funds can only be used on costs associated with the
apprenticeship training and not for things like wages, licences to practice, or travel and subsistence payments. More details on what can be funded may be found at (https://www.gov.uk/government/publications/apprenticeship-funding-and-performance-management-rules-2017-to-2018).
If you do not have enough in your account, you can buy more by contributing 10% towards the costs. The government will contribute up to 90% of the balance. This is called co-investment.
What if I do not contribute to the Apprenticeship Levy?
If you do not have to contribute to a service account by paying the AL, you can still organise qualifying apprenticeships, but you will have to pay 10% of their costs, with the government paying the 90% balance, up to the maximum
amount available for that particular apprenticeship.
Contact us for more advice
The AL and ALA will be introduced from 6 April 2017. It is likely to cause some problems, either in establishing whether you are liable to the AL in the first instance, by looking at connected or group companies, working out how much ALA you are entitled to, or what you can spend your funds on. If you have any queries on the new system, please do get in touch.
Other useful contacts:
Email: firstname.lastname@example.org Telephone: 08000 150 600