Apprenticeship Levy

The Apprenticeship Levy is a UK tax on employers which can be used to fund apprenticeship training. In the current (2018/19) tax year it is payable by all employers with an annual pay bill of more than £3 million at a rate of 0.5% of their total pay bill.

History

The Apprenticeship Levy was announced by Chancellor of the Exchequer George Osborne in the July 2015 budget which was held following that year's General Election.[1] It was subsequently incorporated into law by Part 6 of the Finance Act 2016.[2] and came into effect at the start of the 2017/18 UK tax year on 6 April 2017. It was projected to raise £2.675 billion in its first year of operation.[3]

Operation

The Apprenticeship Levy is paid by employers with annual pay bills in excess of £3 million. In this context, the pay bill is defined as the earnings liable to class 1 secondary National Insurance contributions. The levy is payable at 0.5% of the total pay bill (i.e. not just the element over £3 million) minus an annual "levy allowance" of £15,000,[4] although the total amount payable equates to exactly 0.5% of the element over £3 million.

The levy due by an employer is paid to HMRC through the Pay-as-you-earn (P.A.Y.E) process alongside payment of Income Tax and National Insurance contributions[5] and is held in a 'digital fund' that employer can use to pay for apprenticeship training. A 10% contribution is added to each monthly payment.

Funds in the digital fund remain available for 24 months from the date of payment. Any amount that remains unspent after that period will expire and will be reclaimed by HMRC, including the 10% contribution.

Payment from the digital fund is made directly to training providers on a monthly basis, for as long as the apprentice remains on the scheme (i.e., until the apprenticeship is completed or the apprentice leaves). Any apprenticeship that is terminated less than 42 days after the start of the apprenticeship will not qualify for any payment.[6]

Initially, Levy-paying firms could only share 10% of their levy with other businesses. When this provision was introduced, a firm could also only nominate one other company to receive its levy fund, but from July 2018 this was extended to as many firms as the levy-payer wished.[7] On 1 October, Philip Hammond MP, Chancellor of the Exchequer, announced that from April 2019 [8] firms would be able to share up to 25% of their levy with other businesses in their supply chain,[9] a move which was welcomed by businesses.[10]

The use of the levy for funding apprenticeships which commence after 1 May 2017 is the responsibility of the Department for Education and the Skills Funding Agency in England. There are separate arrangements in Scotland, Wales and Northern Ireland, since apprenticeships are a devolved policy.[11]

References

1. HMRC, Chancellor George Osborne's Summer Budget 2015 speech, accessed 4 July 2017
2. "Finance Act 2016, Part 6". Legislation.gov.uk. UK government. Retrieved 4 July 2017.
3. "Information on Apprenticeship Levy" (PDF). UK Department for Education. Retrieved 4 July 2017.
4. HMRC, Apprenticeship Levy - guidance for software developers, updated 9 September 2016, accessed 4 July 2017
5. BPP University/BPP Professional Education, Employer Guide: Apprenticeship Levy Key Facts, October 2016 update, accessed 10 December 2016
6. "Apprenticeship technical funding guide - GOV.UK". Retrieved 12 April 2018.
7. Department for Education, Greater flexibility for apprenticeship levy as transfers extended, published 26 June 2018, accessed 5 October 2018
8. Seetec, From April 2019 you’ll be able to transfer 25% of your levy funds to other companies, according to an announcement by the Chancellor of the Exchequer, accessed 13 October 2019
9. HM Treasury, Package of measures unveiled to boost apprenticeships, published 1 October, accessed 3 October 2018
10. Federation of Master Builders, Chancellor right to make Apprenticeship Levy more flexible Archived 5 October 2018 at the Wayback Machine, published 4 October 2018, accessed 5 October 2018
11. Department for Education, Apprenticeship Funding, updated 12 August 2016, accessed 10 December 2016