Apprenticeship Levy: Everything UK businesses need to know

Businesses across the UK are gearing up for the introduction of the new Apprenticeship Levy, but what exactly is it? And why should your business take heed?

These are just some of the questions we hope to answer in the following paragraphs, so stick with us as we run you through this far-reaching and important change in UK law, which could affect you soon.

What is the Apprenticeship Levy?

Announced by former skills minister Nick Boles in July last year, the term ‘apprenticeship’ was enshrined in law and given equal legal status to that of degree-level attainment.

It was a decision based on the need to enhance the reputation of apprenticeships in the years ahead and one that at the same time pinpointed the need for increased employer contributions to how apprenticeship schemes are currently being funded across the country.

To drive increased spending on apprenticeships, the government will is bring into effect a 0.5 per cent Apprenticeship Levy on company payrolls from April 2017.  It is hoped the levy will raise up to £3 billion per annum to be put towards the provision of apprenticeship training in the coming years.

The levy is payable based upon the entire payroll of any given organisation, while a levy allowance of £15,000 is in place for each tax year.

Payable monthly, the allowance equates to £1,250 per month, but this figure will cumulatively roll from month to month. Therefore, companies that do not use their entire allowance can roll over any excess to the following month. For example, if your levy liability in month 1 is £1,000 you will not pay the levy and your allowance in month 2 will be £1,500.

As a result of the allowance system, it means only businesses with a payroll in excess of £3 million per year will be liable for these costs – 0.5 per cent x £3 million = £15,000.

Money raised through the levy will then be made available for investment in specific schemes to enhance apprenticeship placements and programmes across the country, with the government investing an additional ten per cent on top of levy charges into individual company accounts. This means that for every £1 charged under the Apprenticeship Levy, an investment of £1.10 will be funnelled into these programmes.

Companies have been able to create their own individual accounts from January 2017, with the levy itself to come into force from April 6th this year. All eligible businesses must declare their liability to HMRC by May 2017 for process in April payrolls.

All levy contributions are to be collected via PAYE, alongside other tax and National Insurance contributions.

The new scheme supports the government’s ongoing aim of helping to deliver upwards of three million new apprenticeship positions across the UK by the end of the decade.

Why are apprenticeships important?

Comprehensive apprenticeship programmes can have far-reaching benefits both for businesses and the individual, with a well-run apprenticeship scheme a sign of a company’s commitment to effective learning/development and an understanding of the need to plan for the future.

Investing in the next generation of skilled professionals is an important part of any business development plan, as it ensures the organisation will be able to draw upon individuals with the essential skills needed to succeed within their industry.

By investing in staff in this manner, companies can leverage a vast array of benefits, while there are some significant advantages that apprentices themselves can enjoy. For starters, companies that invest in apprenticeships are able to train staff specifically to meet their corporate needs both now and in the future. Meanwhile, staff loyalty is often far higher among individuals who have taken on apprenticeship training than among other sets of workers.

Apprenticeship programmes can be tailored to meet specific roles within a business, while apprenticeship programmes can help to reduce levels of staff turnover. Learning can also be done on-the-job, meaning levels of disruption can be reduced. Apprentices can also bring fresh and new ways of thinking into a business, providing key innovation for the future.

For workers themselves, there are also a wide range of benefits to enjoy, such as being able to earn and learn new skills at the same time, having a mapped out career path to strive towards in the future, the potential to progress quickly in your career and to enjoy a varied learning experience, splitting time between studying and gaining hands-on experience.

There really are myriad advantages for both the employer and employee in apprenticeship training and the new Apprenticeship Levy hopes to ensure these benefits can be enjoyed more widely in the future.

How should we prepare for the launch of the levy?

With the levy only a month away, everyone currently affected will already have their plans in place.  What should you be doing if you are not an organisation that is currently eligible for the levy but could be in near future?  This is the question that savvy business leaders must now be asking themselves.

Primarily, leaders simply need to recognise the importance of apprenticeship training for the smooth operation of their business and the economy as a whole in the years ahead. At the same time, it is essential to brief staff on the implementation of the new levy (should they be affected) and ensure financial departments are fully prepared to introduce the payment of the new levies to HMRC from their April launch date.

Businesses should also be drawing up plans as to how they can spend the money accrued in their Apprenticeship Levy accounts, ensuring they are investing in their own future and that of the next generation of skilled professionals across the country.

To find out more about the importance of investing in the next generation of skilled workers, read ‘Using mentoring effectively for young professionals‘.