Apprenticeship Levy Update

December 6, 2016

The Government is committed to boosting productivity by investing in human capital by introducing an Apprenticeship Levy (“the Levy”) on all employers (in both the private and the public sectors) in the UK. The hope is that this will increase the quantity and quality of apprenticeships. It will also save the Government approximately £3bn per year as it passes the cost of training on to employers. The legislative provisions for the Levy are contained in Part 6 of the Finance Act 2016 and it will have effect on and after 6 April 2017.

It has been reported that 2million additional jobs are expected to require higher level skills by 2022. The Levy is intended to play a major role in addressing this skills shortage.

Who has to pay and how much is it?

The Levy will have to be paid by all employers in the United Kingdom with a pay bill of more than £3 million. Most small employers will not need to pay it. The rate for the Levy will be 0.5% of the employer’s pay bill and will be collected via the Pay as You Earn (PAYE) scheme. All employers will receive a levy allowance of £15,000 and this is why only employers with a pay bill of more then £3 million will need to pay the Levy (as £15,000 is 0.5% of £3 million).

What will be done with the money raised?

The collection of the levy will be administered by HMRC and is a matter reserved to the UK Government. However, in terms of what will be done with the money raised, separate arrangements will exist in England, Wales, Scotland and Northern Ireland. In short, it will be up to the devolved administrations what they want to do with the money raised.

In England separate arrangements have been published for a digital apprenticeship service account to be created. English employers will be able to register to create the online account from January 2017. However. this will not be of relevance to employers in NI. HM Treasury allocates funding to the NI Executive through the Block Grant and it is for it to decide how to spend the money received. It remains to be seen how much will be directed to vocational training in NI.

Responsibility in NI for the Levy has transferred to the Department for the Economy (“the Department”). The previous Minister for Employment and Learning had favoured ring fencing the funds raised for skills development programmes, including apprenticeships. However, The Department has recently stated that the Levy will give the Executive a Barnett consequential gain of £76m. Nonetheless, with the cessation of funding for existing apprenticeships and the financial burden which the Levy will impose on the public sector it is feared that the Executive’s budget will not increase. The Department has launched a short and focused consultation process to garner the opinions of those impacted. Although nothing has been finalised, it may be the case that the Levy will offer little to employers in NI.

With the introduction of the National Living Wage it is possible that apprenticeships will become more and more popular as a means of providing cheap labour. Although most private sector employers in NI will not have to pay the Levy this will be a significant and costly consideration for larger employers locally.

The fact that multiple schemes will apply in different parts of the United Kingdom will mean that employers who are based in multiple regions of the United Kingdom will also need to understand the regional differences.

Employers who already pay into an existing industry levy scheme (such as CITB NI) will still be required to pay the Levy if they reach the £3 million threshold. Not surprisingly this is causing great concern within the construction industry.

Overall, it is impossible to say how exactly employers in NI will be affected by the Levy. However, this is not a matter which the NI Executive will be able to opt out of or ignore and change will have to take place in NI on a number of levels if the Levy is utilised to improve vocational training.

Please note: The content of this article is for information purposes only and further advice should be sought from a professional advisor before any action is taken.