Overview of the UK’s New Apprenticeship Levy
By William Kirwan, Vice President, Advisory Services
Businesses operating in the UK need to be aware of a new apprenticeship levy that came into effect April 6, 2017.
The tax is part of a government plan to improve vocational skills and increase the number of apprenticeships in the UK by 3 million in 2020. The apprenticeship levy applies to all UK employers. It should be noted, however, that there are country-specific differences in how programs will be administered. The Wales government website notes for example that there are no plans to operate a voucher system as in England. This post summarizes the UK apprenticeship levy at a high level and should apply to all UK employers, though businesses operating in the UK should be mindful that Scotland, Wales and Northern Ireland have apprenticeship programs of their own.
The levy consists of a 0.5 percent payroll tax assessed on any organization with a payroll (effectively all payments attracting Class 1 National Insurance Contributions) of over £3 million ($3.76 million), or any group of connected companies with a total payroll over that threshold. If your company is part of a group that meets the requirement, you will need to share in payments, even if your own payroll is under £3 million. It’s up to individual business groups to decide how their payment shares will be divided.
The good news: Employers also receive an annual allowance of £15,000 to offset payments. Groups of companies must also split this allowance.
Using the Funds
If you pay the tax, you are eligible to create an online account enabling you to receive funds from the levy you pay towards apprentices’ training. The funds must be used to train apprentices using recognized providers. The funds cannot be used to pay apprentices’ wages, travel expenses, license fees or other expenses. Amounts withdrawn are subject to a maximum depending on the sector and type of apprenticeship. Apprentices must work in the UK at least 50 percent of the time.
The apprenticeship tax is unrelated to existing industry-related training levies and must be paid in addition to them.
If you don’t owe the tax, you can’t use the apprenticeship service this year, though that is set to change in 2018. In the meantime, you can share the cost of assessing and training apprentices with the government under a “co-investment” program. You pay 10 percent and the government pays the rest, up to a maximum limit.
How to Pay
You need to pay the tax monthly through the government’s online Pay As You Earn (PAYE) system — the same system you use to pay income tax and National Insurance contributions. Employers are responsible for determining whether and how much they owe. You can use HMRC’s Basic PAYE Tools to figure your payments.
Report monthly payments using your Employer Payment Summary (EPS). If your payroll rises to over £3 million, start your reporting the month it happens. Payments are a deducible corporate income tax expense.
If you have a large payroll, the new apprenticeship tax may sting for a while. The UK government says it may reduce earnings in the short term, but will increase productivity and profitability over time.