With all the talk of the National Living Wage and pensions auto-enrolment, another issue facing accountants and HR managers has rather slipped under the radar.
The government’s announcement that it is introducing a new Apprenticeship Levy – essentially a tax that will be used to create a warchest for businesses to bring in more apprentices – has received little coverage in the press. But it could have significant ramifications for companies, both from a financial point of view and in terms of reaping the potential benefits.
At a recent event organised by MorePeople and Roythornes in Peterborough, skills minister and Grantham & Stamford MP Nick Boles explained the government’s thinking behind the levy. “The UK has a longstanding, deep-seated productivity problem compared to our neighbours and the US,” he said. “We want everyone to have a skill level so that they can command higher wages. We want to invest in people becoming more productive.”
Boles believes that traditional training packages offered by businesses are leaving employees well set for working in that company, but with little transferable skills, and wants to give them a broader skillset.
Under the proposals, companies with a payroll of over £3 million must pay a compulsory 0.5 per cent levy, and in return will gain access to a cash allocation to spend on existing apprenticeship schemes, or will be able create their own in partnership with others or industry bodies. Any standard up to degree level can be catered for.
At a time when most government money pots are shrinking, the tax will swell the coffers for apprenticeship schemes from £1.5 billion this year to £2.5bn in 2020.
There are, inevitably, some caveats. There are limits to how much can be spent on one individual, and the money can’t just be used for training existing staff. SMEs who fall under the levy threshold can still get involved by setting up arrangements with training providers.
Boles has big plans: “I’d like to see apprentices having to agree to go back to their school to talk about their experiences. That should be part of their contract,” he said. He believes a potential attraction for the apprentices themselves is the possibility of getting a degree-level qualification without having to sink into tens of thousands of pounds of debt. It’s an ambitious plan, targeting three million apprentices by 2020, but having won the toughest battle of all in getting the Treasury on board, the challenge now will be to convince companies that this is something of genuine value and not just another unwanted tax.
• What is the Apprenticeship Levy?
The levy has been set up by the Conservative government to tackle unemployment and give young people, in particular, more opportunities to learn relevant and needed skills through on-the-job training and working.
• Who has to pay?
Every employer with a turnover of £3m or more will have to pay the levy, which is charged at a rate of 0.5 per cent of their annual payroll. An allowance of £15,000 per year is allocated to offset against the levy. A company with a wage bill of £10m would therefore pay £35,000 a year.
• How do I pay?
Companies will pay the levy to HM Revenue & Customs (HMRC) through the Pay As Your Earn (PAYE) process.
• Isn’t this essentially another tax?
Yes, but the government wants companies to benefit by claiming funds to help train apprentices for the good of both their own businesses and the wider employment pool.
• What do I get back in return?
Companies who have paid the levy will be able to access funding for apprenticeships through a new digital apprenticeship service account. This cash can be spent on training and assessment for apprentices in England. The service also helps find training providers to develop and deliver the programme.
• My business’ wage bill is under £3m. Can I still access funding?
Yes, but there are different rules. Companies will be asked to make a contribution to the cost of using a training provider, with the government paying the rest. More details on the government’s level of support will be outlined this month and ratified in October.
• I’m in Scotland, Wales or Northern Ireland. What does it mean for me?
As it stands you will still have to pay the levy but will not necessarily have access to the funds, as this will depend on decisions by the governments of those countries.
