Stephen Hemmings – Partner
Many medium sized businesses will suffer an additional tax burden, equivalent to 0.5% of their salary cost from April 2017
The government has recently announced the introduction of an Apprenticeship levy effective from April 2017.
The levy will be 0.5% of the employers gross salary bill and will be collected through the PAYE system. Each employer will have an allowance of £15,000, which will effectively mean that only those with a gross salary bill of above £3m will suffer a charge through the levy.
The government expects to raise £3billion through the levy system by 2019-2020. Economic analysts have estimated that they would need to have increased the corporation tax rate by 4% to achieve the same result!
As an example of what the charge could be, an employer with a gross salary cost of £10m will suffer an annual levy of £35,000 (£10m x0.5% – £15,000 allowance).
This is part of a wider attempt by the Government to encourage more apprenticeships within UK business. Their stated intention is for there to be 3m apprenticeship positions by 2020. The idea is that the levy will help to fund a new system, which all employers will be able to access (including those not subject to the levy). They will be able to apply for digital vouchers to use to offset the costs of offering apprentice positions. The detail in respect of this voucher scheme, to be known as the ‘Digital Apprenticeship Service’ is to be finalised.
The government consulted on the new proposals last Autumn and concluded that a levy based on payroll costs would be fairer than one basis of doing the number of employees. The system will apply to both private and public sector employers. The NHS, for example, is expected to contribute around £190m itself each year.
Whilst the motivation to encourage valuable apprenticeship schemes can be applauded, understandably there has been a mixed reaction by employers to the levy. Many feel disappointed by the additional tax burden, and especially by the fact that these limits mean that the levy will capture many medium sized businesses.
Although there will be the chance to recover the contribution through the voucher system, this could well be a burdensome administrative process. Interestingly HMRC have noted in their proposals that the voucher system should not be onerous for employers, but we will see!
An unintended side effect of the levy could also be that some cost conscious employers look to trim their wage bill, rather than incurring additional taxation.