Are you comfortable with your NMW compliance?
29/11/2022. Organisations who neglect to follow National Minimum Wage (NMW) compliance can be left liable to costly ramifications, both financially and reputationally.
Given it is National Apprenticeship Week and it is coming up to the sixth anniversary of the Levy’s introduction, we thought it would be helpful to provide an update and give some food for thought as to how apprenticeships can be a core part of how you train employees and how this could potentially help with costs, retention, recruitment and your business’s growth plans.
1. What is the Apprenticeship Levy and when do I pay it?
The Apprenticeship Levy is a tax. However, the Levy is only payable by employers in the UK with a total annual pay bill over £3m. If you have a pay bill over £3m, you will be required to pay the Apprenticeship Levy charge. It is calculated at 0.5% of your pay bill in excess of £3m. Please note, the Levy is based on your total pay bill, not the pay bill of your apprentices, meaning that regardless of whether you engage apprentices you will pay into the Apprenticeship Levy.
The paybill is defined as pay that is assessable for employer Class 1 NIC purposes. The Levy is paid through payroll via normal RTI processes, (reportable on the Employer Payment Summary) on a monthly basis.
2. What happens if our business is part of a group?
An employer is viewed as a group of connected companies, meaning that where an entity is connected to other entities, only one £3m is available, meaning that all the pay bills of the entities within the group need to be added together and 0.5% paid on the total excess over £3m. The £3m allowance is apportioned across the year when calculating how much apprenticeship levy needs to be accounted for under PAYE.
The definition of a group is the same as that used for claiming the Employment Allowance (currently a £5,000 credit that can be used to offset the first £5,000 of employer Class 1 NIC costs incurred for those that qualify – those groups/employers with an employers’ Class 1 National Insurance liability of less than £100,000 in the previous tax year).
The payroll mechanics of the Apprenticeship Levy are not straightforward for those in a Group. It will be important to allocate the Levy allowance carefully to ensure all parties and entities understand what costs they will have in respect of the Levy.
We recommend employers that are in a group review how they have allocated the Levy allowance and the Employment Allowance to ensure both have been claimed correctly. This is an area HMRC will test as part of an Employer Compliance review.
3. Can I access the Levy I have paid to HMRC?
Although the Apprenticeship Levy is a tax, employers can access their Levy funds and use these funds to pay for apprenticeship training and end assessments.
The Apprenticeship Levy that you pay is transferred automatically by HMRC into your online digital Apprenticeship Levy account. It will be important to set up an account to ensure these funds can be utilised. If you do not use these funds within 24 months, they will be lost. Therefore, it is important to plan carefully and review how training and skills and apprenticeships are used within your organisation.
Where your pay bill is not in excess of £3m, you will not have paid into the levy. However, funding is still available. The Government has confirmed it will fund 95% of the costs up to published limits for the qualifying apprenticeships. This is also the case for Levy payers who have used up all their Levy funding in their online account. Further information can be found here.
Further, employers who do not use all their Levy pot can share 25% of it with other employers – this may therefore be helpful to local communities and be something larger organisations could consider when assessing their approach to corporate social responsibility (CSR) and environmental and social governance (ESG).
It should be noted that the Levy account can only be used to fund apprenticeship training and end point assessments in England. As skills funding is devolved, funding for apprenticeships works differently in Scotland, Northern Ireland and Wales currently. Additionally, the amount going into your online account will also be reduced on a proportionate basis where you have employees who live outside England.
4. If the Levy is a tax, how is there a benefit from it and how can savings be made?
Although the Levy is a tax, the tax sits in your Levy Digital Account to draw down on and use for qualifying training and end-point assessments. There are also some great advantages for employing apprentices that may help reduce costs, where they are right to use for your organisation. We highlight some of the key areas below of how employers may benefit from apprenticeships:
5. What apprenticeship programmes are currently available?
A list of current apprenticeship standards can be found here. To help the business focus on using apprenticeships where appropriate, one option might be to set department targets for how many employees should be apprenticed.
6. Can we pay ourselves with the Levy we pay – can we become a training provider?
Where a significant proportion of training takes place in-house, the levy can only be used to pay “yourself” where you are a registered apprenticeship training provider (with the Skills Funding Agency). If you are providing skills and training in this area, you would be required to be Ofsted inspected.
More information can be found here on applying to be an “employer apprenticeship training provider”.
7. What will the Budget in March 2023 bring to apprenticeships and the Levy?
It is unknown currently. However, there has been frustration with the “Levy” system and the degree of complexity around the whole apprenticeship system. We await to see if there will be any further changes announced.
Contact us
Apprenticeships, training and the Levy are big topic areas that require careful planning given the detail involved. Please do contact us for more information.
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