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The apprenticeship levy on employers, first announced by the Chancellor of the Exchequer in the July 2015 Budget, is being introduced in April 2017 with the aim of enabling the Government to increase its spending on post-16 apprenticeships in England to achieve its target of three million apprenticeships by 2020. A consultation exercise followed the announcement and the Government's response has now been published.

How Will the Levy Operate?

The levy will apply to employers across all sectors. It will be set at a rate of 0.5 per cent of an employer's wage bill, excluding other payments such as benefits in kind, and will be collected via the PAYE system. Employers will receive an annual allowance of £15,000 to be offset against the levy payment. The effect of this allowance is that the levy will only be payable by employers with wage bills in excess of £3,000,000 (estimated as fewer than two per cent of employers). Those with a lower wage bill will not pay anything.

The levy will be paid into a central fund, which all employers will be able to access to gain support for apprenticeships via the Digital Apprenticeship Service. Employers who have contributed to the fund will have two years in which to use their funding. Any unspent money will be made available to other employers. Employers who pay the levy will also be able to access funding support above the level of their contribution by way of Government top-ups to their digital accounts.

In order to minimise the burden of implementing these changes, HM Revenue and Customs are to work closely with employers and providers of payroll services, and the Government intends to provide clear guidance for employers on how the system will work in relation to different types of workers. In addition, a new independent, employer-led body, the Institution for Apprenticeships, will be established to regulate the quality of apprenticeships within the context of achieving three million starts by 2020.

Although the apprenticeship levy will apply to employers across the UK, as skills training is a devolved policy area in Northern Ireland, Scotland and Wales, only employers in England will receive funds in their digital account to spend on apprenticeship training in England. Further work is needed so that arrangements can be put in place ahead of the levy’s implementation to ensure the system works for employers across the UK.

For further information on this article, please contact Jade Linton on 0121 746 3300, email j.linton@sydneymitchell.co.uk or fill in our online enquiry form.

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