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The Apprenticeship Levy

May 2016

Following last year’s autumn statement, HMRC has now published draft legislation which introduces the proposed new apprenticeship levy. The levy will have effect from 6 April 2017.

The purpose of the levy

The levy has been introduced in order to fund an estimated 3 million new apprenticeship schemes in England by 2020 and the government has predicted that, within 3 years of its introduction, the levy will bring in approximately £3bn per year.

Companies will benefit from the levy by receiving state-funded training for their apprenticeship schemes. This will be accessible through the Digital Apprenticeship Service.

How much is the levy and who will have to pay it?

The levy will be set at 0.5% and employers will be entitled to an annual allowance of £15,000. In practice, this means that the levy will only be payable by employers with a total gross paybill of £3m per year excluding benefits in kind.

Employers should be aware that if their company is connected to another company, only one of the companies will be entitled to the £15,000 annual allowance. This will have a detrimental impact on large group companies with subsidiary structures that also have large paybills.

A new payroll tax?

Notwithstanding the benefits of improving and increasing the number of apprenticeships available in the UK, the draft legislation has attracted lots of criticism. Many industry leaders have pointed out that the levy is essentially a new payroll tax that will impose significant costs on employers, some of whom are unlikely to see any benefits from it.

Companies in certain industries, for example the retail industry, are likely to have extremely high paybills but are unlikely to offer a large number of apprenticeships. Effectively these companies will be subsidising apprenticeships for others by paying an additional tax without the reassurance that their money will be spent on improvements to their industries.

Conversely, some small and medium sized businesses with paybills of below £3m will welcome the new levy as they will be able to benefit from it without making any additional contributions.

Should you require any further information on the apprenticeship levy, please do not hesitate to contact Angela or Mark.

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