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The apprentice levy is here, so what happens next?

By Cathy Walker, assistant manager, Pay Roll, Grant Thornton (NI)

With a busy news agenda over the last few weeks, the Apprenticeship Levy came into effect with little fanfare on April 6.

The Apprenticeship Levy is a cornerstone of the government's skills agenda, creating a system which puts employers at the heart of designing and funding apprenticeships to support productivity and growth.

Employers are expected to pay levies of £2.6-2.8bn per annum, although the bulk of that sum will be paid by larger organisations with an annual pay bill of over £3m.

The levy is only one part of the story. For those employers who engage with the changes to the apprenticeship regime, there is the potential to harness the many and well documented benefits that apprentices bring to an organisation. The following should be considered:

1: Many apprentice programmes attract funding. However, each of the devolved administrations, including Northern Ireland, will continue to have complete flexibility over training and apprenticeships within their respective budgets. Consequently apprenticeship funding in Northern Ireland will be determined independently of the amount of the amount of levy revenue allocated to Northern Ireland by Westminster;

2: With respect to employment taxes, there is a National Insurance exemption for Employer NIC on 16 to 25-year-old apprentices, meaning a potential tax saving of 13.8% on their wages; and

3: Where progression planning is a priority, having a pipeline of talent coming through is naturally important and training can be used to develop future or current managers directly. The training could be for new hires or upskilling existing employees, with apprenticeships providing a means to recruit and also progress individuals.

For employers, companies, groups, charities and not for profit organisations with an annual pay bill of £3m, the 0.5% levy will be applied to their staff pay bill; collected with PAYE, and paid together with tax and national insurance.

Most payroll software will already have been updated to facilitate the calculation, but it is advisable for organisations to take action now to ensure that they understand the criteria for levy payments. Although the levy is only a few weeks old, already some myths exist around what is or isn't required, including:

- Salary sacrifice must be added back in (not true);

- Businesses don't pay the Levy until it reaches the £3m; (not true)

- Allowance is applied per PAYE scheme (not true); and

- Only applies to employers with apprentices (definitely not true).

Businesses that operate as part of a group of companies or as associated entities, with multiple PAYE schemes, should pay particular attention to the need to apply the £3m threshold to the group as a whole.

Much the same way as the Employer Allowance for NIC is reclaimed from HMRC, an allowance of £15,000 will be available to offset against the levy, but likewise will be shared, split or apportioned between all group and connected entities.

For those businesses that will have to pay the levy it should not simply be viewed as a cost. The main focus should be to understand the business's current position, its future requirements and fundamentally how to gain a competitive advantage through the new apprenticeship arrangements.

  • For further information or advice, Cathy Walker can be contacted at cathy.walker@ie.gt.com Grant Thornton (NI) LLP specialises in audit, tax and advisory services

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