Irwin Mitchell | Focus on Education | Does your wage bill exceed £3 million per year.

If so, the proposed employment apprenticeship levy will affect you.

We have been contacted by some of our clients who are concerned about the financial impact on their organisation of the apprenticeship levy which is due to come into effect in April 2017.

Background

The Government announced in its July 2015 budget that it would be introducing a levy on large employers to help fund 3 million new apprenticeships during the current Parliament. The levy will support all post-16 apprenticeships in England, and will provide funding that each employer can use to meet their individual needs.

The scheme

The basic rules are that it will be introduced from 6 April 2017 and will be accounted for via the PAYE system. The rate of 0.5% will be applied to an employer’s pay bill and the first £15,000 of liability will be exempt, meaning that employers would need a pay bill that exceeds £3million before they have to pay any levy. The pay bill is the amount of earnings subject to class 1 NIC, therefore benefits in kind are excluded from the levy.

Connected employers, such as a group of companies or MAT’s, will only receive one exemption.

Who is in scope?

Whilst all organisations whose wage bill exceeds £3 million will be in scope, public bodies that employ at least 250 people will be set targets by the Secretary of State for the number of apprentices they are expected to employ. This will be set at 2.3% based on headcount, meaning a school with a head count of 450 will be expected to start at least 10 apprentices per year in proper accredited posts. That will cause difficulties for a number of schools.

Schools that are maintained by a local authority are expected to be included in their own local government target and will be caught by the requirement. Other schools such as free schools, foundation schools, voluntary-aided and academies or trusts with 250 or more headcount will be covered by the duty.

There is scope for smaller bodies to be included if they are part of a group (which can be determined by the Secretary of State).

Rationale

The Government believes that if businesses invest in apprenticeships then it is likely that they will save more than the levy.

Don’t forget that from April 2016 employer NIC (13.8%) will not be charged on Apprenticeship’s earnings when they are under 25 years of age. However, tax experts do not think that the savings will exceed the levy unless a significant number of workers are apprentices. The levy is a new tax but should probably be viewed as an additional charge to employers NIC although the Government can’t simply do this as they have committed to not increasing NIC.

What should schools and MAT’s do now?

This is going to be problematic for many large schools and MAT’s. Our clients are already concerned that the additional financial burdens will dissuade schools from joining a MAT.

These costs should be included in the forward projections of school and college finances.

Where can I find the rules?

The draft legislation was published last week and copies of it and guidance can be found at www.gov.uk/government/publications/apprenticeship-levy-how-it-will-work.

The Government has launched another consultation and is seeking views on which public bodies in England should be set targets on the number of apprenticeships working for them and can be found at www.gov.uk/government/consultations/public-sector-apprenticeship-targets.

The consultation ends on 4 March 2016.