Stephen Hemmings – Business Tax Partner
Following the recent speculation, HMRC has recently reiterated its intention to press ahead with the introduction of an Apprenticeship Levy on 6 April 2017.
We take a closer look at the details of how it will be collected and utilised, the opinions of business leaders and where the government have reached in preparing their systems and tax payers for its implementation.
What is the Apprenticeship Levy?
It is a levy of 0.5% on employers in the UK who have a pay bill of over £3 million. All UK employers will fall within the regime but a £15,000 allowance is available. This means that the charge will only lead to additional tax for employers with a payroll bill of over £3 million and the government assures us that only 2% of employers will have to pay the levy. So if that’s your business at least you are special!
The levy will be used to fund apprenticeships and non-levy paying employers will also have some access to the new system. Therefore, it is likely to have an impact on a wide range of businesses and Menzies clients.
The Apprenticeship Levy detail
As you would expect, the proposals are not straightforward and the compliance aspects themselves are likely to create an additional burden on businesses.
The levy will apply to all employers in the UK, although confusingly the accompanying digital apprenticeship system will only apply in England. We are told there are separate arrangements for the provisions of apprenticeships in Scotland, Wales and Northern Ireland.
The levy will be collected through the PAYE process (on the 19th or 22nd of the following month) and the relevant pay bill of a business will be based on earnings subject to Class 1 secondary NIC contributions. This will not include payments such as benefits in kind subject to Class 1A NIC.
The levy allowance of £1,250 operates on a monthly basis to the extent that if part of it is unused in a particular month, it is carried forward. If a charge is paid in one month but there is an unused allowance in a future month, the business will receive a credit which it can use to offset against other PAYE liabilities.
Connected employers will only receive one allowance between them and they will need to decide how this is to be allocated at the start of the tax year. Broadly connection arises where one company controls another or both are controlled by the same person or persons.
The levy payment will be deductible for corporation tax purposes.
Who benefits from the new digital apprenticeship service?
If you are paying the levy, and your employees are in England, you will be able to access funding for apprenticeships through a new digital service account.
The funding applies only to two types of specific apprenticeships. The ‘apprenticeship standards’ as well as an ‘apprenticeship framework’ which is being phased out by 2020. Links to both are set out below.
It should be possible to register for this account from 1 January 2017 and then use it to pay for training of apprentices from 1 May 2017. The first fund credits should appear in accounts after 22 May 2017, when the first levy amount is due to be paid.
The government will apply a 10% top up to funds deposited.
It is important to note that the funds will expire after 18 months, so cannot be built up over time.
The government is still considering whether the funds can be spent on another firms apprentices, such as a business in their supply chain, and specifically whether employers can transfer 10% of their funds for this purpose from 2018. However, they have confirmed it can be shared with other businesses in a group structure.
The scheme can only be used for new apprenticeships from 1 May 2017.
Funds will be taken from the digital account every month. To the extent the funds do not cover the cost of training, the Government will meet part of the costs of their shortfall, through what they call ‘co-investment’. The government is currently proposing that this level of support could be as high as 90% of additional funds, but will confirm the co-investment rate in October 2016.
The government have said that by 2020 all employers will be able to use the digital service to pay for training and assessment. Somewhat confusingly, in the same guidance they also say that non-levy employers won’t need to use the digital service until at least 2018. However, to the extent such an employer uses approved providers, they can benefit from so called ‘co-investment’ by the Government from May 2017.
Is it really happening?
For a number of months there has been speculation as to whether the levy proposal would be implemented by the proposed start date of 1 April 2017, or even whether it would be withdrawn entirely.
The Government’s self-imposed June deadline for the release of more detail passed without any further details being published. The Skills Minister at the time even suggested, before the Brexit vote, that the levy may not go ahead in the event of the UK leaving the EU. Like most politicians involved in the referendum he then revised his opinion and confirmed that the new system will still go ahead next April.
However, in mid-August HMRC eventually published further guidance and reaffirmed that the levy will be introduced next April. Further information is scheduled to be released in October and December, confirming levels of government support, funding and eligibility rules as well as further guidance on how the levy will be operated.
What the business world thinks of the Apprenticeship Levy
It is fair to say that these new proposals have not been met with a wholly positive response in the business world.
It is widely acknowledged that there is a distinct skills shortage within the UK industry. Therefore on the face of it, the chance to invest £11.6 billion in apprenticeships over the next five years is a great opportunity, and the Government’s 90% proposed co-investment does sound generous.
However, the CBI (Confederation of British Industry) believe that the plans need a radical rethink. They point out in particular a lack of flexibility in how the funds can be spent and a current lack of transparency over how the success will be managed and measured. On a practical level they are concerned about the extra administration and whether HMRC will have the necessary IT infrastructure in place by next April.
The first point on flexibility is particularly pertinent for Menzies clients. UK businesses spent over £45 billion on training in 2015, with only £1.8 billion of that being in relation to apprenticeships.
There is a dual risk that investment in other types of training will suffer, and that firms will attempt to shoehorn other training into the apprenticeship rules. Other countries such as Ireland, Germany, Denmark and France have a similar scheme which is apparently much less restrictive to businesses.
In May, the British Chamber of Commerce went as far to say that the proposals have already had a ‘chilling effect’ on British industry business as employers have begun to scale back successful training schemes to cope with the burden of a levy.
Therefore, whilst the idea of investment in skills training is a positive one, the detail of the rules already appear to restrict the potential benefits, as the government is missing deadlines to provide further information. Furthermore, there is a lot of uncertainty in UK businesses about these rules which may unfortunately hold back investment in wider training.