13 October 2017

The Apprenticeship Levy…six months on


Nobody, especially small business owners operating on tight margins, enjoys having to pay additional taxes. However, we sometimes have to bite the bullet for the greater good. Using tax to fund essentials such as workplace training makes sound economic sense in the long run. 

Six months have passed since the government introduced its new Apprenticeship Levy, so how well are small businesses coping with the new rules?

What is the Apprenticeship Levy?

  • The Apprenticeship Levy is a UK-wide measure that puts the onus on employers to fund new apprenticeships
  • The levy is paid on annual paybills in excess of £3 million. “Paybill”, or payroll, is defined as “total employee earnings subject to Class 1 secondary NICs” 
  • It is charged at a rate of 0.5% of an employer’s paybill
  • Smaller companies can apply for apprentice funding of up to £15,000 per annum to offset the cost
  • Firms looking to recruit an apprentice must register with the scheme, even if they are not eligible to pay 

The rationale behind the Apprenticeship Levy is to increase productivity growth by improving training standards. In the longer term this is expected to plug skills gaps in a variety of sectors and should help businesses become more profitable. 

Does your business understand the Apprenticeship Levy?

While the rules seem relatively straightforward, a recent survey conducted by the British Chambers of Commerce in partnership with Middlesex University London has revealed that 23% of eligible firms “have no understanding of the Apprenticeship Levy or don’t know how their company will respond to it”. Alarmingly, despite having had six months to get used to the changes, just under a quarter of levy-paying firms could be facing a meltdown as a consequence of their inaction.

Accounting for the Apprenticeship Levy

Planning ahead for the additional cost of the Apprenticeship Levy is a must. Here are some key points to consider:

  • It is a business cost

First and foremost, the Apprenticeship Levy should be understood as a business cost. Indeed, 86% of respondents to the BCC survey said the levy has increased their overall costs. It’s worth remembering that apprentices are free to move jobs, however, and this could impact upon the way the cost is accounted for if an apprentice you’ve trained moves on to another company.

  • It is collected by PAYE

On a practical level, the levy is collected via PAYE and is therefore payable alongside National Insurance and income tax. Registered companies receive a digital account to help them manage the process more efficiently, and training providers are paid directly from this account. Levy-paying companies should note that any unused funds from their £15,000 allowance will expire after 24 months, making it especially important to budget carefully. 

  • Government can co-fund the cost 

No organisation with a payroll totalling over £3 million is exempt from paying the Apprenticeship Levy – even those in the public sector, such as the NHS. Much smaller firms that aren’t obliged to pay the levy can still receive government support if they want to take on an apprentice. 

Changes to the existing Specification of Apprenticeship Standards for England (SASE) frameworks will see the government co-fund 90% of the cost of training an apprentice in for smaller businesses, so new start-ups and smaller companies won’t be overburdened by additional, unwelcome costs. 

Don’t be part of the 23% with no understanding… 

Contact the RWB team on 0115 964 8888 or email enquiries@rwbca.co.uk for more details on the Apprenticeship Levy, the best way to budget and how it affects your payroll.

The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.