There’s a new payroll tax on the way – are you ready?

Posted on 06 Jun 2016 by

From 5th April 2017 the government will require employers to pay into the new Apprenticeship levy and businesses need to be aware now to make their firms ready. The apprenticeship levy is designed to boost productivity by investing in vocational skills and producing a highly capable workforce for the future. The levy will be available to employers to allow them to fund apprenticeship training for their staff.

The government has a stated aim of getting 3 million new apprentice starts by 2020 and they believe that this will be a large step towards achieving this.

The good news is that if your business has a paybill of less than £3m per year then you’ll be exempt from the levy. A ‘paybill’ in this context is described as all employee earnings to which the class 1 NIC applies. This includes all temporary and contract workers that you pay through the payroll.

Payment will be made monthly, alongside your usual PAYE & NIC payments through RTI and the £3m will be calculated on a monthly pro-rata amount, adjusted as necessary at the end of the year. If a paybill is variable then the levy will only be collected in months where it exceeds the pro-rata amount.

One of the stated intentions is to ensure that administration of the levy will be as light touch as possible and so the collection and reporting is run according to already implemented definitions and entirely through the RTI process.

The aim of the scheme is to give employers a £15,000 pot of money they can then access to provide external apprenticeship training. This will be provided through a digital account for each eligible employer to spend as they see fit on schemes and attendees who fit the relevant apprentice criteria.

Although each employer has this pot available the government is not expecting them all to use it to the maximum and the remainder will then be made available to SMEs who are not members of the scheme to allow their apprentice training to continue.

One interesting aspect of the scheme is the regionality that the government has built in.

Employers will only be able to spend the English proportion of the levy they have collected on English apprenticeship schemes.

The proportion of the levy collected that relates to Scottish, Welsh and Northern Irish employees will be distributed to the relevant regional assemblies and they will then have free reign over how this is spent. At this time it is not believed that it will be ring fenced for apprentice or indeed any other form of training although this may change.

The digital account can be used to pay for a wide variety of training as long as it is specifically for apprenticeships. This includes some parts of professional qualifications and university degree level qualifications. It is expected that some changes may need to be made to certain course aspects to ensure that they comply.

There is no age limit on the recipient of the training and there are no measures to designed increase diversity.

As it currently stand it looks as though employers who are committed to an apprenticeship scheme will actually be able to get more than their £15,000 allowance and possibly even more than they pay in. Exactly how this will work hasn’t yet been announced but it is expected that it will take the form of a top up for their digital accounts.

Clearly this means that employers who wish to heavily invest in training should watch for announcements as to how this will work as it is possible that there could be some significant benefit to their business.

With this amount of money coming into the system, employers can be forgiven for thinking that the cost of apprentice places on external training schemes will rise, however there are plans to introduce an apprentice training scheme cap which will operate in a similar way to the university fees cap. Higher level courses will naturally have a higher fee cap although again, the details of this are to be confirmed.

At first sight it may seem that long suffering employers have been burdened with yet another admin task and its corresponding tax, however for employers that are determined to invest in their human capital and organisational capability this offers a significant shift in central government thinking. If the rumours are true and high achieving employers can get more out than they put in then it will certainly be worth investigating.

Sochall Smith the Leeds Accountants

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