Draft Legislation published on Apprenticeship Levy

Wed 17 Feb 2016

At the Summer Budget 2015, the Chancellor announced the introduction of the Apprenticeship Levy. The policy idea is to that the levy will be used to fund new apprenticeships, and also improve their quality in order to better develop vocational skills. It is not clear at present precisely how the funding of appropriate training out of the levy fund will be made, but employers will potentially be able to access more funding than the amount of levy they have paid where their training costs exceed this. Conversely, employers who choose not to access the training fund will effectively be subsidising the apprentice training costs of other employers.

Draft legislation has now been published for consultation, and this will be included in Finance Bill 2016. However, the levy itself will not apply until 6 April 2017.

How will the Apprenticeship Levy be Charged?

The levy will be charged on ‘employers’ pay bills’ at the rate of 0.5%, but each employer will have an annual levy allowance of £15,000 – meaning that the levy will only apply where the employers’ pay bill exceeds £3 million. Where there are ‘connected companies’ or ‘connected charities’, they will have only one levy allowance between them (in the same way that the Employment Allowance is shared between connected companies).  It will be up to the companies or charities concerned to decide which one claims the levy allowance.

The draft legislation states that the pay bill is defined as the total earnings paid in the tax year which are liable to Employers’ Class 1 National Insurance Contributions (NIC), not including benefits. However, where no Employers’ Class 1 NIC are due because they fall below the secondary threshold, meaning these earnings will still be included in quantifying the pay bill.

Employers cannot seek to recover their liability for the levy by making deductions from employees’ earnings.

More detail yet to follow in Regulations

Specific details of how the levy will be assessed and paid in practice will only appear in future Regulations, but we do know that this will be incorporated within the Real Time information system. Given that employers will need to gear up for this, it is to be hoped that the mechanics will be made public sooner rather than later.

Anti-avoidance and penalties

A raft of measures is also included to prevent avoidance of the levy, ranging from specific anti-avoidance clauses, to amendment of the disclosure of tax avoidance scheme regime (DOTAS), general anti-abuse rule (GAAR) and accelerated payment rules to cover the levy. Furthermore, if the levy is unpaid, there are powers enabling HMRC to recover it from third parties.

Regulations will follow covering the retention of records covering the Apprenticeship Levy for a specified period, for which failure to comply will be subject to a penalty of up to £3,000 per year. Penalties will also apply, as expected, for failing to make returns, for errors in returns or late returns.

Comment

Whilst the aim of the levy is laudable, it is nevertheless going to present a headache for employers, in the form of more compliance and the need to ensure they don’t miss out on their share of the training fund. Employers who don’t take on many apprentices are going to lose out, and this is a particular worry for charities who have sizeable pay bills but also rely on voluntary workers rather than training up apprentices.