The Apprenticeship Levy is a tax on employers in the UK, which have annual wage bill of more than £3m. Under the levy, these employers will be taxed 0.5% of their annual PAYE payroll. The funds will contribute to funding employees to complete training through an apprenticeship programme. The levy will be applied across both the private and public sectors, regardless of whether a business employs apprentices.
A drive to develop vocational skills
The Apprenticeship Levy is part of a drive by the government to develop vocational skills in the UK, with the aim of creating three million new apprenticeships by 2020. The initiative will raise £3 billion a year. Under the Levy, 2.3% of the public-sector workforce will be employed through an apprenticeship scheme.
Whilst only organisations with an annual payroll of over £3m will have to pay the charge to fund the apprenticeship programme, the levy is set to affect training and development at all levels and, consequently, affect all businesses.
According to HMRC, less than 2% of employers, some 22,000 organisations, are likely to meet the £3 million PAYE annual threshold. Not all of the affected employers will be large organisations. As Personnel Today notes, smaller employers, which have, for example, a 100-strong workforce with an average salary of £30,000 a year, would take the business over the threshold.
Which businesses will benefit?
Employers who are not liable to pay the Apprenticeship Levy are still able to access government support for apprenticeships. Smaller employers who do not have to contribute to the fund are still able to draw from it and reap the many training and development benefits apprenticeships provide.
These non-levy paying organisations have to make a 10% contribution to the costs associated with training an apprentice. The remaining 90% will be ‘co-invested’ by the government.
Organisations which have less than 50 employees do not have to pay anything for hiring apprentices under the age of 19. The company will also receive a £1,000 payment and an additional £1,000 will be paid to the training provider.
Digital Apprenticeship Service
Employers which pay the levy are able to access the funds they have contributed to the levy through a new online system, known as the Digital Apprenticeship Service (DAS). It is important to note that only employers in England are able to use the DAS system and those in Wales, Scotland and Northern Ireland have their own arrangements.
Employers paying the levy will benefit from a 10% monthly top-up from the government to add to their total monthly contributions.
Employers contributing to the Apprenticeship Levy have two years to use the collected funds. After these two years, the funds will be put back into the central Levy pot and will be available for other organisations to access.
One of the stipulations of the initiative, is that all training is provided through an accredited apprenticeship provider.
The Apprenticeship Levy is not without its criticisms. One criticism is that an employer may pay into the levy but not recoup any of the money, as they do not have any need to be involved in training and development through apprenticeship schemes. In this sense, some organisations might view the levy as another form of employment tax.
Alternatively, there are opportunities for organisations to get more out of the scheme than they put into it.
In order to make the most of the new Apprenticeship Levy, companies, no matter what size or industry, should proactively identify places where training could benefit the organisation. For example, recognising which areas of a business could benefit from another pair of hands or more highly trained staff, and then embarking on a structured apprenticeship training programme, will ensure the company makes the most of the Apprenticeship Levy.
Apprenticeships are an effective way for employers to benefit from a constant flow of adequately trained staff, which develop and grow alongside the business. The Apprenticeship Levy is designed to develop vocational skills, help people into work, and encourage businesses to develop and thrive with an adequately trained workforce. In this sense, businesses, big and small, would be wise to explore the opportunities the new Apprenticeship Levy funding scheme may provide.
About the Author
This blog post was written by Hadyn Luke, Director of CMS Vocational Training (CMSVOC). CMSVOC offers a vast range of courses and training programmes across diverse sectors. CMSVOC is committed to helping people of all ages, backgrounds and industries, find the right course and training programme so they can progress in their chosen career or embark on a new career. CMSVOC’s professional and talented staff have specialist knowledge in a wide range of industries and work with learners to help them achieve their career dreams.