With many unanswered questions on the apprenticeship levy, EEF continues to call for a delay to the implementation deadline of April 2017. For the moment, however, there is no postponement, and with less than a year to go, employers must prepare as best they can.
Whilst we await clarification on certain aspects of the levy together with information on the funding rates and rules (due out in draft next month), we set out here the questions that UK employers should be considering now. This information should help them assess whether they are likely to have to pay the levy and, if so, how it may operate for them.
For more details on the levy, watch our Apprentice Levy webinar.
What is our pay bill?
The amount of your company’s pay bill will determine whether you will have to pay the levy (or whether you will operate under the co-investment model) and, if so, how much you will pay.
The levy has been set at the rate of 0.5% of an employer’s annual pay bill. However, a £15,000 annual allowance is deducted from the amount an employer needs to pay, meaning that single companies with a pay bill below £3 million will not actually pay any levy (subject to the rules on connected companies and variable pay bills – see below).
For the purposes of the apprenticeship levy, your ‘pay bill’ will be based upon the total amount of employee earnings subject to class 1 secondary NICs – the employer contribution. These earnings include any remuneration or profit coming from employment, e.g. wages, bonuses, commissions, pension contributions, that you pay the employer NICs on; however, payments such as benefits in kind (subject to Class 1A NICs) are not included. Also note that agency workers’ pay will not be counted towards your pay bill, provided they are not actually employed by you.
Is our pay bill variable?
The levy is assessed on the employer’s annual pay bill, but under current proposals it will be collected monthly. Similarly, the annual allowance will be deducted on a monthly basis (£1250 per month), with any unused allowance carried forward from one month to the next. Should an employer then use all of their cumulative monthly allowance in a tax year, then they could be liable to pay some levy in a single month, even if over the year, their total pay bill is less than £3 million, (and hence their levy contribution reduced to nil by the annual allowance).
It is currently unclear precisely what will happen in the above situation, where an employer’s pay bill is variable throughout the year. Potentially there could be an annual reconciliation, similar to the collection of other taxes, with some employers with pay bill around £3 million be assessed for the levy at the end of the tax year, but we are currently awaiting confirmation.
You should therefore consider whether your pay bill is likely to be variable in this way. This may be because:
- you pay differently over the tax year and therefore have some months when the pay bill is over £250,000 even though the annual pay bill is less than £3 million
- you pay differently over the tax year and therefore have some months when the pay bill is under £250,000 even though the annual pay bill is more than £3 million
- your pay bill is less than £3 million at the start of the tax year but then breaks that amount during the year (e.g. because of expansion of the business)
- your pay bill is more than £3 million at the start of the tax year but then goes below that amount during the year (e.g. because of contraction of the business)
Are we a ‘connected company’?
You should consider whether you are a ‘connected company’ for the purposes of the apprenticeship levy. This is because under current proposals:
- the pay bills of connected companies are combined for assessment of the levy
- only one levy allowance will be allowed per group of connected companies, (which can be split between the companies in the group)
- connected companies are able to pool their levy funds/vouchers
The current proposed definition of ‘connected company’ is the same as for the purposes of corporation tax. Companies would be connected if, at the start of the tax year, one is treated as having control over the other, i.e. being able to exercise direct or indirect control over its affairs.
Which parts of the UK do we operate in?
You should consider which parts of the UK you operate in, the proportion of your pay bill relating to employees in England and whether you have any cross-border operations and apprenticeship programmes.
Apprenticeships are a devolved policy. Authorities in each of the UK home nations manage their own apprenticeship programmes, including how funding is spent on apprenticeship training. (Note that if you are an employer with operations in Scotland, Wales or Northern Ireland, you may also want to contact their apprenticeship authority/take specific advice.)
The apprenticeship levy will apply to employers across the UK, irrespective of their location. All employers operating over the devolved nations will pay their contribution based on all of their UK employees, irrespective of where the employees live/work or where the employer is based, even if the employer is solely based outside England. However, only the money raised from the English element of the levy will be spent on English apprenticeships by giving employers vouchers to spend on English apprenticeships. The other devolved nations will receive their share of the levy directly from Government.
To calculate how much you have to spend through the English system, the Government will use employee data to assess what proportion of the levy is paid on the pay bill of employees in England. Note that the test for determining the pay bill of English employees it is still under consideration, and could relate to the employees’ home or work addresses.
For employers operating cross border and with different apprenticeship programmes, the Government is developing rules – to due to be published next month - on which employees and training providers they can use levy funds/vouchers on.
Are we already paying into an existing industry levy scheme?
It is possible that you already pay a training levy. If so, you will not be exempt from the apprenticeship levy, but there may be changes to your existing industry levy arrangement.
There are two remaining statutory training boards, the CITB and ECITB. These boards should this summer be consulting with their members on potential changes to their existing levy arrangements, i.e. a new way of operating existing mechanisms in light of the wider apprenticeship levy.
Do we have/will we have apprentices who started with you before April 2017?
You should consider the start dates for apprentices.
Apprentices starting on an apprenticeship programme before April 2017 will be funded for the duration of the apprenticeship under the terms and conditions that were in place when the apprenticeship started. So, even if you pay the apprenticeship levy when it comes in, you will not be able to use the levy funds/vouchers to pay for these apprenticeships.
What age will our apprentices be?
The age of your apprentices will also be relevant.
Whilst the amounts and the way that payments to employers for younger apprentices are made is likely to change, you should still receive incentive payments (to help meet employment costs) for taking on younger apprentices. This should apply when you take on an apprentice who is aged between 16 and 18 years old.
You should also note that, as of April 2016, employers’ NICs for apprenticeships under 25 were abolished, thereby incentivising recruitment of apprentices in this age bracket.
For more details on the levy, watch our Apprentice Levy webinar