It’s been described as an added payroll tax and expected to affect 2% of employers. So, what do you need to know about the apprenticeship levy? And what are the changes for apprenticeships to those employers not affected? We’ve come up with a list of questions and answers to help you understand what’s around the corner when it comes to the apprenticeship levy.

The government is due to release more information including funding, the support available and the final details in October 2016. But here’s what we know so far…

What is a levy and why has it been introduced?

A levy is a tax that is imposed and in this instance, the apprenticeship levy will be collected from UK employers with a pay bill over £3m from Spring 2017. The funds raised will be used to make an investment in apprenticeships.

The levy, which was first mentioned by George Osbourne in the 2015 Autumn Statement, is designed to make ‘big businesses shoulder the costs of training workers’.

The primary strategy is to push the UK economy by encouraging larger companies to invest in work based training to develop their workforce. The overall expectation is that only 50% of the funds raised by the levy will be utilised by large companies. This could potentially mean the remaining 50% will be available to be reinvested in work based training for the SME sector.

Who is impacted?

If your payroll is over £3m you will pay the levy. The levy will be paid into a digital account at the rate of 0.5% of the payroll costs through PAYE alongside national insurance and income tax.

Employers will not pay the first £15,000 of the apprenticeship levy so it will be only be payable to those with a payroll in excess of the £3m threshold.

Public sector organisations will pay the levy and 2.32% of their workforce must be apprentices.

What does it mean if I am not impacted by the levy?

If your payroll is under £3m then you do not pay a levy. However, you will be given access to the new digital apprenticeship service to choose recognised training, providers and assessment centres. The government will ask you to make a contribution to the cost of training and they will pay the rest up to a capped amount (to be confirmed in October 2016).

The government will ask that you to pay directly to the provider and you will be able to spread the cost over the lifetime of the apprenticeship. As both you and the government make a payment, it’s called ‘co-investment’. The government will pay their part of the training costs direct to the provider.

According to Employment4Students, one in four small businesses already employ at least one apprentice. There are talks of incentives for smaller companies to recruit 16-19 year-olds that could see the government funding up to 90 or 100% of the training costs. Plus, levy funds that have not been used within 18 months could be reinvested to help SMEs with apprenticeships. All of this is yet to be confirmed.

(source: Apprentice Makers and Gov).

Summary

For SMEs with a wage bill of £3m or less their main challenge is to understand how you might access funding or support for apprenticeships. Clarity is needed to help businesses understand apprenticeship funding and the government needs to communicate how businesses would benefit from these reforms.

Based on what is known to date, the apprenticeship levy is potentially a positive move for SMEs. It widens the scope for apprenticeships up to degree level, includes opportunities for existing employees who might want to learn new skills as well as continuing to encourage the employment of young people.

Access Generation will include this in their conversations with large companies finding out how they plan to exploit the opportunities or overcome any challenges that the levy might present to them. Any information that we find that could be beneficial to SMEs will be published on our website. As with any government initiative or proposed changes in taxation there is potential for amendments or changes prior to its launch. We will provide updates as and when the information becomes available.

Further information

In October 2016 the government will announce information on:

• Final levels of funding
• Government support
• Additional support for 16-18 year-olds
• Final detailed funding and eligibility rules

In December 2016 we will get further guidance for employers from HMRC on how to calculate and pay the apprenticeship levy.