Apprenticeships - the levy, the definition and targets

The Apprenticeship Levy

The apprenticeship levy, which was introduced by ss 98-121 Finance Act 2016, will be payable by UK employers through PAYE from 6 April 2017

Background

The Chancellor announced in the 2015 Budget that there would be a new tax charge called the Apprenticeship Levy. After consultation, the draft legislation was published as part of the Finance Act 2016, which received Royal Assent in September 2016. The apprenticeship levy is contained at Part 6. The Regulations implementing the calculation, payment and recovery of the apprenticeship levy are found in the Income Tax (Pay As You Earn) Regulations 2003 (as amended by the Income Tax (Pay As You Earn) (Amendment) Regulations 2017). These regulations come into force on 6 April 2017.

The levy

The apprenticeship levy is charged annually but employers report and pay it each month alongside other PAYE liabilities.

If an employer has more than one PAYE scheme, they can share the allowance across these PAYE schemes in a way that suits them best, by notifying HMRC of the split with their first return of apprenticeship levy, which will usually be at the beginning of the tax year.

Rate of levy and allowance: Part 6, Finance Act 2016

The apprenticeship levy is charged at a rate of 0.5% of an employer’s annual pay bill.

An annual apprenticeship levy allowance of £15,000 means that only those employers with an annual pay bill of over £3 million will have to pay and report the levy. This is because 0.5% of an employer’s £3 million pay bill is £15,000. The allowance cannot be used to pay for apprenticeship training. Any unused levy allowance not used in a month will be carried over into the following month.

However, where the ‘connection’ rules apply a pay bill of less than £3 million may attract a levy liability, depending on how the allowance is shared. This is because where an employer is connected to other employers by virtue of the connected companies or the connected charities rules, they can only have one annual allowance of £15,000 for all the connected companies or charities within their group. The connected companies/ charities rules are contained in the Act and technical guidance is found in ALM11000  of the HMRC internal Apprenticeship Levy manual.

Retention of records

Employers must keep records of any information they have used to calculate their levy liability for at least three years after the tax year to which they relate.

Employer for part of the year

If an employer starts up during the tax year or goes into liquidation during the tax year, it can still offset the full £15,000 allowance against the levy allowance for the part of the tax year that they operate.

 

When can an apprenticeship be called an apprenticeship?

When it is a statutory apprenticeship...

From 1 April 2017, the Enterprise Act 2016 (Commencement No.3) Regulations 2017  bring into force section 25 of the Enterprise Act 2016 which provides that a person providing or offering a course or training wholly or partly in England who calls it an apprenticeship commits an offence unless it is a statutory apprenticeship. The offence also covers describing a person who undertakes such a course or training as an apprentice. Employers cannot commit the offence in relation to their employees. Where the offence is committed by a body corporate, an officer of the body corporate also commits the offence if it is committed with their consent, connivance or is attributable to their neglect. This provision forms part of the law of England and Wales but applies to England only.

Apprenticeship targets for the public sector

The government has published the draft Apprenticeship Targets Regulations 2017 which bring into force the government’s proposals to apply apprenticeship targets to public bodies with 250 or more workers in England. Apprentices are included in this headcount, but contractors and workers under zero hours contracts are not.

These regulations are made by the Secretary of State under powers in the Apprenticeships, Skills, Children and Learning Act 2009 (as amended by the Enterprise Act 2016). Those powers provide the Secretary of State with the power to make provision for apprenticeship targets applicable to prescribed public sector bodies in England. These Regulations introduce a wholly new regime in relation to the meeting of such targets.

The Regulations prescribe two distinct groups of public bodies: firstly, a group of bodies which comprise government departments and a small number of additional bodies (Group A) listed in Schedule 1 including Acas and the Health and Safety executive. The second group is Group B which comprises Transport for London and those of its subsidiaries which are public bodies.Other public bodies are covered but there is a list of exceptions at Schedule 2 including the BBC and universities.

The regulations set a target of at least 2.3% apprenticeship starts each year, which can be aggregated over the four year period from 1 April 2017 to 31 March 2021.
 

The Regulations have been laid before parliament and are due to come into force on 31st March 2017.

 

Further information on the Enterprise Act 2016 is available for Emplaw Online subscribers here

Further information on apprenticeships, the apprenticeship levy and apprenticeship targets is available for Emplaw Online subscribers in our Apprenticeship guide