In 2015 the government announced plans to introduce an apprenticeship levy by 2017. This measure would require large employers to pay an amount to the government in order to fund 3 million new apprenticeships by 2020. New details have just been released in the run up to the requirement being introduced on the 6th April 2017.

Who does it affect?

Employers with an annual pay bill of more than £3 million will have to pay the levy, regardless of whether they already pay in to an existing industry scheme. The total pay bill will be calculated on the total amount of earnings subject to Class 1 secondary National Insurance contributions (NICs) and will cover any remuneration or profit coming from employment, such as wages, bonuses, commissions and pension contributions, but not any other contributions such as benefits in kind.

How much is the levy?

The amount of levy to be paid by employers is a yearly figure of 0.5% of the total pay bill. The government has introduced a £15,000 allowance for each employer which will be offset against the levy amount. This allowance will be applied on a monthly basis and accumulate through the year, meaning any unused allowance can be carried over from one month to the next. The levy is paid to HMRC through the PAYE process alongside tax and NICs and should be declared to HMRC the following month. This means the first submission with a levy declaration will be May 2017.

Each month the government will add a further 10% on top of the employer’s levy contributions. These funds can be used for paying for apprenticeship training and assessment through the digital apprenticeship service.

Where does the money go?

From January 2017, employers will be able to create a digital apprenticeship service account where the levy payment will be kept. Funds will be visible from May 2017 and the amount in the account will be the total available to spend on apprenticeships in England. Once the funds enter the account, employers will have 18 months to use these until they expire.

Company groups who are connected for the purposes of paying the levy, can collect their funds together in one digital account by registering to have PAYE schemes attached to this one account. In the first year, the funds are to be used for apprenticeship training and assessment of their own employees.

Lead Business Partner Patrick Carroll-Fogg commented: “Finally the Government has given employers more details about this system. It’s good news that the Government will itself contribute to employers’ pots, however, the reduction in the amount of time until funds expire is not such good news. Originally, the Government proposed a period of 2 years within which to use funds; it has been confirmed that the period will now be 18 months.