How Will the Apprenticeship Levy Affect Your Business?

How Will the Apprenticeship Levy Affect Your Business?

With the Apprenticeship Levy due to be collected by HMRC from April 2017, you may be wondering what this surprise payroll tax will mean for your business. Announced in the government’s 2015 Autumn Statement, the levy is being put in place to help fund an increase in apprenticeship numbers and quality, and build an experienced workforce for the future.

If you need advice and guidance as we approach the levy, or want to take on an apprentice while they are still publicly funded, you can get in touch with you usual representative at Ascott Blake.

Below is a breakdown of what we know about the levy so far:

Who will be affected by the levy?

The Apprenticeship Levy will be applied to all UK businesses in both private and public sectors. Businesses with an annual wage bill of over £3 million will have to make payments, which will result in less than 2% of employers across the UK paying the levy.

These larger organisations will need to pay the levy, regardless of whether they reclaim their digital funds to purchase apprenticeship training and services or not. Every business who pays the levy will be entitled to an allowance of £15,000 to offset against their payment.

It has also been indicated that non-levy paying employers will also have to make a financial cash contribution towards new apprenticeship starts from April 2017 onwards. As of the August 12th updates, businesses of all sizes will only be required to contribute 10% of the cost of training an apprentice. They will then be able to access government funding in the form of co-investment, and may receive financial incentives.

How will the levy be collected?

The first Apprenticeship Levy PAYE return will be due in April 2017. It will be applied at a rate of 0.5% of the annual paybill, and will be collected monthly by HMRC through the PAYE system. To keep the process as simple as possible, “paybill” will be based on total employee earnings subject to Class 1 secondary NICs.

Below is a couple of examples of how the levy will work.

EXAMPLE 1

Employer of 250 employees, each with a gross salary of £20,000

Paybill: 250 x £20,000 = £5,000,000

Gross Levy Due: 0.5% x £5,000,000 = £25,000

Application of Allowance: £25,000 – £15,000 = £10,000

Net Levy Due: £10,000

EXAMPLE 2

Employer of 100 employees, each with a gross salary of £20,000

Paybill: 100 x £20,000 = £2,000,000

Gross Levy Due: 0.5% x £2,000,000 = £10,000

Application of Allowance: £10,000 – £15,000 = £0

Net Levy Due: £0.