From 6 April 2017 all UK employers will be required to pay an apprenticeship levy of 0.5% of their gross annual pay bill to HM Revenue & Customs.
Guidance from the Department for Business, Innovation & Skills, and the House of Commons’ briefing paper confirm that:
- An employer’s annual pay bill will be based on the total amount of earnings subject to Class 1 secondary National Insurance Contributions. This includes the earnings of employees and casual or temporary workers.
- Employers will receive an allowance of £15,000 per tax year to off-set against the levy. This means that if an annual pay bill is less than £3 million, an employer will not pay the levy.
- To enable fluctuations caused by casual or temporary workers to be taken into account both the levy and the allowance will be operated monthly which means an employer will have a monthly allowance of £1,250 to off-set against its monthly levy. An unused allowance from one month can be used to off-set a levy in a subsequent month.
- Group companies will only receive one £15,000 allowance per tax year. The group will need to decide how the allowance will be apportioned between group companies at the start of the tax year.
- The government will top up the funds in your levy account by 10% each month.
- The first levy payment will be taken from your April 2017 pay bill.
- The levy an employer pays will be ring-fenced in its online account to be spent on training and assessments for apprentices in England with approved training providers. The funds will not be able to be spent on anything else.
- The earliest time an employer will be able to spend its levy funds will be late May 2017.
- The levy applies to all UK employers and will be calculated on the basis of total annual gross pay bills. However, the funds available for an employer to spend on apprenticeship training in England will be reduced by the percentage of its employees and workers who live in the devolved nations.
- Employers will have 18 months to spend the levy funds from when they enter the online account, thereafter the funds will be lost.
Further guidance in respect of the levy will be provided in June, October and December 2016. However, to make the most of the levy, employers should take action now.
The first step should be to assess the amount of levy which your business will be required to pay and calculate the funds which will be available in your online account to spend on apprenticeships.
The funds available in your online account may be more than you anticipate. By way of example:
If your gross annual pay bill for staff living in England is £10,000,000 your annual levy payment would be £35,000. The Government proposes to top up the funds in online accounts by 10%. Therefore, the funds available in your online account would be £38,500.
Guidance from the Department for Business, Innovation & Skills confirms that you will only be able to use your funds in your online account to pay for apprenticeship training and assessment with approved providers and assessment organisations.
You will not be able to use those funds to pay for ancillary costs such as wages, travel or subsistence costs, management costs, or other types of training. Therefore, a significant number of apprenticeships would be required to use all of your apprenticeship levy.
If you would like to make the most of the apprenticeship levy, you should start considering how you could use it now.
You should initially assess your existing workforce. You may be able to use your apprenticeship levy to fund your existing training costs by transitioning existing staff whose salary costs are already accounted for, onto apprenticeships.
You may also be able to recruit new staff under apprenticeships in roles in which training has not historically been provided under an apprenticeship, to save the cost of other types of training.
The alternative is to create new roles for new apprentices within your organisation.
If you do not use the funds available to you within 18 months of them entering your online account, the funds will be lost.
Protection for the business
At present, there are numerous different types of apprenticeships. These include a traditional contract of apprenticeship, apprenticeship frameworks and approved English apprenticeships.
It is vital that apprentices are employed using the correct contractual documentation for the type of apprenticeship which they are working under.
If apprentices are employed under a traditional contract of apprenticeship, they benefit from enhanced protection from dismissal and may be entitled to enhanced compensation should they bring a successful claim.
For example, an apprentice employed under a traditional contract of apprenticeship is unlikely to be considered to have been fairly dismissed for redundancy unless the fundamental nature of the business changes, or it ceases to trade. If you wanted to dismiss them fairly for poor performance or misconduct, it would need to be extreme and they would in essence, have to be unteachable.
If an apprentice is successful in a claim, their losses could take account of their loss of earnings for the remainder of their apprenticeship, the loss of their training, and the reduction to their future earning potential.
Traditional contracts of apprenticeship are therefore, best avoided. To be valid contracts for apprenticeship frameworks and approved English apprenticeships must include specific provisions. If such contracts comply with the statutory requirements, apprentices working under them can largely be treated in the same way as your other employees.
Therefore, existing or new contracts of employment used for staff who are either transitioned onto or recruited under apprenticeships, should comply with the relevant statutory requirements to ensure the business is protected.
We would be delighted to advise and support you to enable you to make the most of your apprenticeship levy.
If you are interested in attending an event providing guidance on the new levy, the different apprenticeship regimes and appropriate contractual documentation, please register your interest by emailing firstname.lastname@example.org.
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