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With the Apprenticeship Levy set to be implemented in April 2017, many employers may be wondering what this new development in employment law might mean for them. We catch up with Jennifer Smith, award-winning Employment Solicitor at JMW Solicitors LLP to gain her insights on what this new tax development means for employers.
Last year, the government announced plans to implement the apprenticeship levy. This means that the way the government funds apprenticeships is changing in the UK. A new tax is being implemented on employers that will replace taxpayer funding of apprenticeships.
“The tax will be charged at 0.5 percent of an employer’s annual pay bill for a tax year equating to less than an annual allowance of £15,000 via Pay As You Earn (PAYE). This means that the total amount employers would need to spend would be 0.5% of their pay bill, minus £15,000. Larger businesses will therefore be required to collectively pay an annual bill of approximately £3million plus to take on more apprentices than before in previous years,” says Jennifer.
Employers will be able to reclaim their Apprenticeship Levy contributions as digital vouchers which can then be paid towards training for their apprentices. “However, the voucher scheme will not apply in Scotland, Wales and Northern Ireland,” Jennifer cautions. “They will have their own arrangements, the details of which are yet to be confirmed. The government has promised that more information will be released at a later date following the end of the regulation’s consultation period which is until 3 February 2017.”
The Government estimates that 2 percent of UK employers, approximately 22,000 organisations, will be required to pay the levy. It is worth noting that it is not just large employers who will be affected. Some smaller employers will be impacted, as a workforce of 100 people and an average salary of just over £30,000 will take businesses over the threshold.
There is no denying that apprenticeships are beneficial for the UK’s economy. However, some businesses have raised concerns that it will be difficult to achieve meaningful, empowering and valuable apprenticeships (that are both mutually beneficial for the employer and employee) through implementing a one-size-fits all scheme. A great deal of work is needed ahead of the levy’s implementation to ensure that there is the consistency and variety that employers will need.
“Employers who do not pay the levy will still be able to access government support for apprenticeships. Employers that do pay the levy will be able to access the funds they have paid in the new online portal called the Digital Apprenticeship Service (DAS). In addition to that, they will also receive a 10 percent top-up from the Government to their monthly contributions. Any training to the apprentices must be delivered through am accredited provider,” Jennifer advises.
She cautions that failure to pay any levies due may result in costly consequences for negligent employers, saying, “If HMRC becomes aware that the apprenticeship levy has been underpaid by the employer, it may issue an assessment to collect an amount due for one or more tax periods in a tax year. Penalties for errors in apprenticeship returns will also be issued to employers for failure to make apprenticeship returns on time.”
As with any change, the apprenticeship levy will present employers with challenges and opportunities. Below are steps employers should take to prepare for the apprenticeship levy requirements when they become compulsory.
Step 1: Speak to payroll and count the cost
Each organisation is different, and as such will have different costs. For this reason, you should speak to your payroll provider to confirm the amount of your pay bill and how any levy will be paid. Determine what the cost of the apprenticeship levy will be to your organisation, how much you will be required to pay under the levy, what levy funds you will use, and what the impact of funding apprenticeships will be on any internal training programmes.
Step 2: Calculate
Calculate what proportion of your levy you will have available to spend on apprenticeships in England via DAS. Remember to take into account the 10 percent government top-up (as well as the National Insurance Contribution savings that came into force in April 2016). Keep a watch out for developments in Wales, Scotland and Northern Ireland. Remember, the levy cannot be used to pay salaries or other staff costs – it can only be used to pay for approved training and assessment.
Step 3: Review workplace arrangements
Review workforce arrangements, and consider if there are any vacancies suitable to be met through apprenticeships. You should also determine whether any existing staff could benefit from the apprenticeship scheme you wish to implement. Under the new system, apprenticeships will be available up to the highest level and for individuals of any age – but care must be taken to ensure that any move to an apprenticeship is appropriate.
Step 4: Set up an account with the Digital Apprenticeship Service
The digital apprenticeship service was created to help employers maintain control over their apprenticeship schemes. By setting up an account on the service, employers will be able to access funding for apprenticeship training, choose the type of apprenticeships they want to run, the number of apprentices they take on, and the training provider that suits their needs. Through the service, employers will also be able to focus on quality by finding the right apprenticeship for them, from entry level to degree level apprenticeships and beyond.
Step 5: Research and collaborate
If there are no apprenticeship standards that meet your organisation’s needs, consider approaching the Institute of Apprenticeships and become involved in the development of new standards that are relevant to your business. Consider whether it would be appropriate for your organisation to become an approved training provider, enabling levy funds to be used for training apprentices in-house.
Despite misgivings from some employers, the fact remains that apprenticeships - if they are comprehensive and tailored to fill the specific vacancies within an organisation - are not only beneficial for the employees themselves, but also the organisations that have employed them. The infographic below shows how apprenticeship schemes generate business success:
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Jennifer Smith is an Award-winning Employment Solicitor at JMW Solicitors LLP. She has a broad range of employment law experience, spanning both contentious and non contentious employment work. In addition to tribunal work, she also reviews and drafts contracts of employment, policies and procedures, consultancy agreements and compromise agreements. Advising companies on how to protect their interests through effective use of covenants.