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Employers should take action now to be ready for apprenticeship levy

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By Vincent Adams, senior tax manager at EY

Published 19/07/2016

The nex tax applies across the board and companies will have to pay the levy even if they do not employ apprentices
The nex tax applies across the board and companies will have to pay the levy even if they do not employ apprentices

The now former Chancellor, George Osborne, announced in November 2015 that he was introducing an apprenticeship levy with effect from April 2017. Some eight months later some details are now clearer but many are not, in particular how Northern Ireland employers will access funding for apprenticeships.

Firstly, the levy applies whether or not a business actually employs apprentices. It is set at 0.5% of an employer’s pay bill. For these purposes pay bill means all earnings liable to employer’s national insurance.

Every employer, however, will receive an annual allowance of £15,000 to offset their levy, meaning in effect only those employers with a pay bill in excess of £3m per year will actually have to pay it.

Note, however, that groups who have a number of employees across a number of companies are only entitled to one allowance.

Interestingly, currently there are national insurance exemptions for employing those aged under 21 and apprentices under 25. Those exemptions will not apply to the levy.

So, for instance, a pay bill of £5m would mean an annual amount payable of £10,000 after the allowance is applied.

The levy will be paid by employers via their normal payroll processes and, as such, they need to be speaking to their payroll providers now to ensure their software is going to be ready to implement the changes required.

It will be vital that employers have a robust system in place to identify payments liable to the levy, including irregular payments such as bonuses. Some training organisations in certain industries also currently levy members to pay for apprenticeships and training. One example is the Construction Industry Training Board. Unfortunately that will not exempt those members from the apprenticeship levy.

So what do employers get in return or is this just another tax on business? In England the government has created a portal called the Digital Apprenticeship Service which all businesses there will have access to. The levy they have paid will be credited to it and topped up by 10% by the government. However it also appears that all funds ‘expire’ if unused, after 18 months.

Employers can use the funds to pay for accredited training though it is at least doubtful whether many will actually be able to use all the funding potentially available. Most employers will likely spend much less than 0.5% of their pay bill on allowable apprenticeship costs. 

It is of note that the British Chambers of Commerce have said that a risk is that the levy could have a “chilling effect” on business. The concern for many is that in-house training, in particular, will not be eligible for funding. 

The CBI have also previously called for a “radical rethink” of the proposals including how funds might be spent.

The government have indicated that further clarification on the levy will be published through the course of 2016 and that will certainly be welcome.

In Northern Ireland, however, the situation is much less certain.  The reason being is that whilst the levy itself is set by central government, the funding element, by contrast, is devolved to the local administrations in Northern Ireland, Scotland and Wales.

The former Chancellor had indicated that potentially up to £0.5bn could be available to those three administrations. As matters currently stand, the Northern Ireland Assembly has yet to decide how the levy funding should be used or distributed here and indeed, at this stage, there is no certainty as to what Northern Ireland’s share of that amount could be. 

EY recently held an employer forum to discuss the introduction of the Levy and a representative from the Department for the Economy indicated that they are currently working through all these matters. 

They also indicated that they would be very happy to receive representations through employer professional and trade bodies. We would obviously encourage those bodies to take that offer up.

Businesses with employees across the UK will have to cope with at least two different funding models when, or if, the position becomes clearer in Northern Ireland.

That is unfortunate but is perhaps an unavoidable consequence of a devolved model of government.

It is therefore vitally important that employers prepare now both for the cost and administration of the levy. They should consult their professional and trade bodies and their professional advisors. 

We expect that further clarification will be made available both from central government and Stormont, and it is to be hoped that employers here are put on a level playing field with their counterparts in England, Scotland and Wales.

Online Editors

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