Apprenticeship Levy - FAQs

Transcription

1 Apprenticeship Levy - FAQs Why has the government introduced an apprenticeship levy? When the new apprenticeship levy was announced, the government argued that part of its introduction was due to a reduction in employer investment in training. The new levy however is most likely to have been introduced in response to the government meeting its 3 million apprenticeship starts target, whilst the Department for Business, Innovation and Skills (BIS) having to make significant cost savings. When does the levy come into effect? The apprenticeship levy will come into effect in April The levy is therefore payable from the tax year 2017/18 onwards. Therefore your first payment will be in April Who does it apply to? The apprenticeship levy applies to employers who have a pay bill, and pays national insurance in a tax year. While the levy applies to all employers, a 15,000 allowance means that those companies with a pay bill above 3 million will actually pay any levy this is subject to the rules on connected companies and variable pay, (see below). It is possible that employers with an annual pay bill of less than 3 million will in some circumstances pay some levy at some point during the year. The basic levy is 0.5% of an employer s pay bill. Therefore an employer with a 3 million pay bill will incur an annual levy of 15,000. Given that their annual allowance is 15,000, their actual liability will be nil. If a company has a pay bill of 10million, then: Levy at 0.5% = 50,000 Minus the 15,000 = 35,000 for actual levy payable. How much will I have to pay? The levy has been set at a rate of 0.5% of an employer s pay bill. Employers then get a 15,000 allowance, taken off this amount. For employers with multiple pay rolls and more than one HMRC reference and connected employers, only one allowance will be available. 1

2 Definition of pay bill: pay bill is based on total employee earnings subject to class 1 secondary NICs What is are secondary Class 1 NICs payable on? The elements of pay which secondary class 1 NICs are payable on are not the same as pay for PAYE purposes or the same as Class 1A. Broadly some of the differences are, Income tax? Class 1 Employer (secondary) NICs? Pay/salary/wages Yes Yes Bonus/commission Yes Yes Employer pension contributions No No Employee pension contributions Benefits in kind (e.g. provision of a car, private healthcare etc.) Tax relief can be claimed subject to limits Yes, unless one of the limited exemptions applies Yes (because they are paid on gross pay, before deductions) No (they attract class 1A NICS instead) Apprentices under 25 Yes No Termination payments Yes over 30,000 No There is further detailed guidance available at, 5_ _15.pdf Definition of an employer: an employer is a person who has liability to pay the secondary NICs. How will the government collect the levy? The levy will be collected through the employer s Pay As You Earn (PAYE) and will be payable alongside income tax and national insurance. The levy will be collected monthly, with the annual allowance of 15,000 similarly deducted on a monthly basis ( 15,000 divided by 12 months). Any part of an allowance not used in one month will be carried forward and accrue to the following month. What if I employ agency workers? 2

3 If you use agency workers and the recruitment agency is that worker s employer (technically, if the agency pays the employer NI contribution) then these workers pay do not count towards your pay bill and you will not pay the levy on their pay. The levy will be payable by the agency. What is the definition of my pay bill? To keep the process as simply as possible pay bill will be based on total employee earnings subject to Class 1 secondary NICs What if my monthly pay varies? There will be cases where an employer s pay bill varies throughout the tax year, however, the liability to pay the levy arises each month. The total calculation is based on the employer s annual pay bill. Whilst it is not yet confirmed it is possible that employers with a variable pay bill, which over the tax year is less than 3 million, will still have to pay some levy in some months. While again not confirmed we understand that employers with a paybill of over 2.8m may have to register themselves as levy-payers and pay if their monthly liabilities would require them to pay, The annual 15,000 allowance will be available in equal monthly amounts, with any unused portion accruing to a following month. Should therefore an employer s liability to pay the levy exceed the allowance in some months then they may have to pay the levy for these months. Should this happen, then this is likely to be adjusted at the end of the tax year via a rebate. However, there are considerable complications once an employer pays the levy as they can only then pay for apprenticeship training with vouchers and will be liable for meeting the costs of training with their provider. How the levy and voucher system will work in this situation has not been confirmed. How will the levy work if my company is part of a group/ is a connected company? Every employer is levied, however, if there is common ownership or common control (a group/subsidiary situation), then as a group, only one allowance of 15,000 will be allowed. The rules on common ownership are complex and the definition has been taken from sections 450/451 of the Corporation Tax Act They apply to companies and limited liability partnerships. The rules on the allocation of the allowance, (see below), apply to companies that are connected at the start of the tax year and not those who may become connected at a later date. Assuming that they then remain connected at the start of the following tax year, then these rules will then apply to them. The effect of the rules are that the pay bills of connected companies are all liable to a levy payment and that as a group only one total allowance of 15,000 can be claimed. The allowance can be split between the companies in the group, but this division must be decided upon and notified to HMRC before the start of the tax year and cannot then be changed for the remainder of the tax year. Therefore, if all the companies connected at the start of a tax year have a pay bill of under 3 million in total they are unlikely to pay the levy, as long as they ensure that the allowance is distributed between them before the start of the tax year in such a way as to ensure that each of their liabilities is covered by part of the 15,000 allowance. However, in the event 3

4 that they have variable pay, (see above and our answer on companies with variable pay), then they may still have some levy to pay during the year. Definition of connected company : is defined as for purposes of Corporation Tax a company is treated as having control over another if it exercises, is able to exercise, is entitled to acquire exercise, direct or indirect control over its affairs. 1 How will businesses with a pay bill of less than 3m be funded? Those out of scope will need to make some form of contribution to apprenticeships if they wish to deliver apprenticeships, however, this level of co-investment is currently unknown. Much of the media commentary around co-investment has suggested it may be 10:90 but this is purely speculation. Representatives of some of the smallest businesses (less than 50 employees) have called for a complete exemption. Non-levy payers will need to make a payment direct to their training provider, and upon receiving this payment the provider will then be able to receive a payment from the levy fund. These two payments together may, or may not, cover the entire cost of the apprenticeship training. Where they do not, then the employer will need to pay the balance to the provider. It is intended that at some point they will use the new Digital Apprenticeship Service to make their payments, but this is unlikely to happen in April 2010 but at some later date. How will the levy operate across the devolved nations? This is one of the more difficult questions, and is somewhat dependent upon the devolved administrations. The levy will be UK wide, therefore employers that operate across the devolved nations will pay their contribution based on all their UK employees, irrespective of where they live or where they work. The location of the employer is equally irrelevant and very UK employer will have a liability to pay the levy, (subject to the allowance of 15,000). However the vouchers which levy paying employers will be allocated and which they can then spend on apprenticeship training will be based, only, on the portion of the levy which they pay on the pay bill for their English employees. If therefore an employer has a 3 million pay bill for their English workforce and a 1 million pay bill for their Scottish workforce, then they will receive 3 million in vouchers. They can only use these vouchers to train their own employees on English apprenticeships. A part of the levy fund will be set aside and given to the home nations, other than England. The government has inserted a clause in the Enterprise Bill that would enable the devolved administrations to use the levy/voucher system in the same way as in England should they wish to do so. It will ultimately be up to the devolved administrations to decide how the money is spent. There has to date been no announcement on this. Government has indicated that the portion of the total levy fund which will be set aside and distributed to the home nations other than England will be based on the postcode for each worker held by HMRC. Therefore, employers will only receive vouchers for the levy which they pay in respect of the pay bill of employees with a postcode that HMRC hold for them 1 This is our current understanding of the definition, however is subject to change following the revised regulations. 4

5 that is in England. Employers will not receive a voucher in respect of any portion of the levy paid on the pay bills of employees that have a postcode in Wales, Scotland or Northern Ireland. In the now delayed funding guidance we expect there to be further rules around how the levy will operate across the UK. This should include whether employers can use their vouchers on apprentices who live in Wales, Scotland and Northern Ireland, and whether they would be able to use vouchers with providers based in the devolved nations. How will the new apprenticeship levy work with existing industry training boards? There are two existing industry training boards the Construction Industry Training Board (CITB) and the Engineering Construction Industry Training Board (ECITB). Both bodies are required to consult with their member companies in summer 2016 on how the new apprenticeship levy will interact with their levy mechanisms. The CITB recently announced that in the first year at least employers will be required to pay both the UK wide apprenticeship levy and the CITB levy. The ECITB is currently consulting members now with a proposal for a reduced rate, substituted by ECITB reserves. Members that fall in scope of the ECITB need to ensure their thoughts on this are heard through the various platforms such as ECITB s Regional Forums or through ECITB recognised employer organisations. How will the government fund apprenticeships that start before the levy is introduced? Apprenticeships that are started before the first levy payment is taken (April 2017) will continue to be funded under the current model. Therefore, companies starting apprentices in September 2016 will be funded under the existing funding model for the whole of the apprenticeship. Vouchers cannot therefore be used to fund apprentices who start an apprenticeship before April How will I draw down from the levy fund? The new levy will be introduced alongside a new online Digital Apprenticeship System (DAS). The DAS will require an employer to register their details online. When that employer wants to draw down from the levy fund, they will need to register the details of that apprentice (age, the standard they will be on, etc.) which will then tell the employer how much levy they can draw down, in the form of the voucher. These vouchers can then be used by the employer to spend on training with a registered training provider. EEF is working closely with the Skills Funding Agency (SFA) on the development of the DAS and organising member roundtables in autumn 2016 for manufacturers to feedback on the system. Any employers interested should contact the policy team at the bottom of this page. How much will I be able to draw down from the levy fund? How much an employer can draw down from the levy will be dependent on the new standard the apprentice is starting on. The funding tariffs for new standards will be set by government upon the advice of a new industry-led body known as the Institute for Apprenticeships (IfA). Led by employers, the new IfA should give a better reflective of what it costs to deliver each apprenticeship standard. Draft funding rates are to be published in June. 5

6 The government has always stated that employers will be able to draw down more than they put in. At the 2016 Budget, the government announced that employers would receive a 10% top up on their monthly payments for the financial year 2017/18. This top up will vary each year. Therefore for every 1 an employer contributes to their digital account through their levy contribution, the government will add 10%. This would therefore increase the overall amount available in an employer s digital account which they could then spend on apprenticeship training. Government will continue to incentivise employers to recruit younger apprentices aged between 16 and 18. The figure of 2000 has been thrown around recently, with half going to the employer and half to the provider. When will I know much I can draw down? The funding caps for England were due to be announced, in draft, in June 2016 and finalised in the autumn of However, the EU referendum and change of Government and subsequently departmental and ministerial responsibilities has delayed the guidance. While EEF continue to work closely with now Department for Education (DfE) officials there has been no communication as to when the funding guidance will be published. A recent FE Week article suggested it could be as late as September Even then, these will only be draft. Who can I spend my vouchers with? Vouchers from the DAS can only be spent with registered training providers. The new online system will list the register providers where vouchers can be spent. Vouchers can only be spent on apprenticeship training, not wider costs (e.g. salaries). If an employer decides to become a provider in their own right they may be able to use their levy payments more widely. This information should also be in the delay funding guidance. How long will my vouchers last? The vouchers will last 18 months from the time that they appear in the digital account. If they are not spent by this time, they will expire and the employer will lose them. What can I spend my vouchers on? The vouchers can only be spent on apprenticeship training and an English standard or framework this could in due course be a trailblazer standard. What if I have vouchers leftover? Vouchers can be used across a company group, (that is between connected companies ). The DAS system will allow group companies to pool the vouchers and then spend them throughout the group. However, vouchers cannot be shared with a company outside the group, for example in a supply chain. Many businesses are calling for this flexibility, particularly those that already over train for their supply chain. There are however difficulties for government on this including state aid rules. This principle will apply to employers using Apprenticeship Training Agencies, so that businesses who use ATA s will not be able to pay the ATA using their vouchers as the apprentice is the employee of the ATA. Vouchers unspent 18 months after they appear in the employer s digital account will expire and cannot then be used. 6

7 What if I am a levy payer and I use up all the vouchers in my account? If you are a levy payer and you have used all the funds in your account and still need to pay a provider for apprenticeship training, then the government will provide some support to help meet the additional costs. This will be up to a maximum amount dependent on the apprenticeship framework. You will not therefore be able to use all of your vouchers up to the cap which government will set for each apprenticeship standard and then access any further government funding. If you have used all of your vouchers, and need additional funding then, subject to caps government will set, you will be able to access further government support. This model is called co-investment, and will be based on the employer paying a contribution towards the cost of apprenticeship training to the training provider. Once the provider had received this contribution, then they will be able to claim an additional payment from government. The respective elements which the employer will need to pay and which the provider will be able to claim are currently unknown. Will there be any incentives payments (e.g. for recruiting younger apprentices?) As mentioned above, there is likely to be some incentives to recruit younger apprentices. However, what this looks like is not yet confirmed although as mentioned above it may be around 2000 possibly split between employers and providers. From April 2016, employers National Insurance Contributions (NICs) for apprentices under 25 was be abolished, therefore incentivising recruitment of apprentices under this age bracket. How will I pay my training provider(s)? When you draw down from the levy funding, you will be given vouchers, these can then be used on apprenticeship training with a registered training provider only. The value of the vouchers you can draw down will depend on the type of apprenticeship standard and the cap placed on this (as discussed above). Draft funding rates on the caps will not be announced until June. If you require additional training, that is not part of that specific apprenticeship standard, you are likely to get charged for this by the provider. It is not yet clear when the vouchers will leave your digital account to pay the provider but it seems that the vouchers will automatically leave the employer s digital account on a monthly basis the date of the transfer is not yet clear. The vouchers will be transferred in equal monthly instalments, meaning that the cost of the apprenticeship, up to the level of the government s cap, will be spread over the term of the apprenticeship evenly. My business has a direct contract with the Skills Funding Agency (SFA), am I still in scope of the levy? Yes, subject to having a liability to paying the levy which exceeds the annual allowance of 15,000. Can I move my training in-house and become a training provider? 7

8 Yes. However, you are then subject to the same rules and inspections as other training providers are, for example an inspection by Ofsted, and you will not be able to offset the costs of running your in-house training against your vouchers. You will only be able to use your vouchers up to the limit, or cap, which government will set for each apprenticeship standard. Other costs, such as capital expenditure, and staff costs of the trainers, cannot be covered by the vouchers. Can I opt into the new Digital Apprenticeship system? If you do not pay the levy, then you will not be able to use DAS. There are still questions outstanding for employers who have a levy to pay in some months, but not others. This is yet to be resolved. Eventually, it is intended that all employers, including those who do not pay the levy will use the DAS, but there is no firm date set for this. NEED TO KNOW MORE? Listen to EEF s Apprenticeship Levy: One Year to Go webinar at FOR FURTHER INFORMATION CONTACT: Tim Thomas Head of Employment Policy thomas@eef.org.uk Verity O Keefe Senior Employment and Skills Policy Adviser vokeefe@eef.org.uk Follow us online: Blogs: EEF Economics Blog: LinkedIn: 8