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The UK government is pressing ahead with its plans to introduce an apprenticeship levy on businesses from April 2017. This follows an announcement in the 2015 summer budget and autumn statement, after the quality of employer training was deemed too low.  

The levy rate will be 0.5% of an employers pay bill, although businesses will receive an annual allowance of £15,000 to offset against any liability.  The following worked example demonstrates how the levy will work.

Employer with an annual pay bill of £5 million:

Levy sum; 0.5% x £5,000,000 = £25,000

Annual payment; £25,000 - £15,000 (allowance) = £10,000

Accordingly, it will only apply to UK employers with annual salary levels of more than £3 million (0.5% of £3,000,000 amounting to £15,000) which means an estimated 2% of employers. The levy will be used to fund up to 3 million new apprenticeships by 2020 and will apply across all sectors, regardless of whether businesses engage apprentices.

The levy is expected to raise a massive £3 billion per annum up to 2019/2020, with £2.5 billion of this being spent in England. The remaining £500 million would be allocated to the Scottish Government, Welsh Assembly & Northern Ireland Assembly.

National Differences

As if levies and law together wasn’t exciting enough, there is also an interesting political dimension to this change. Although tax is a reserved matter, policy on apprenticeships is devolved to the Scottish Parliament. The Scottish Government therefore recently held a consultation on the best use of their proportion of allocated funds from the UK wide levy. Views were sought from a variety of stakeholders, with the Scottish Government keen to establish how the fund could be used to; enhance productivity, economic growth and support skills development. The responses will now be analysed as part of the forthcoming budget process and we will keep you updated as soon as we are aware of any further detail.

What is clear is that the Scottish Government will not be operating an on-line digital apprenticeship register/scheme as will apply in England. Under this scheme employers select (for example) an apprenticeship framework and choose training providers using ‘digital vouchers’. All employers who register will receive such vouchers with larger employers, who have contributed to the fund, receiving a 10% uplift to their entitlement.

‘Connected’ and Cross Border Companies

Where companies are ‘connected’ they will only have one £15,000 annual allowance which can be shared between them. The definition for connected companies and charities is based on the definition used with the Employment Allowance and is highly technical. However, for example, companies within the same ‘group’, or under the ‘control’ (usually 75%-100% shareholding) of another company, would be considered connected.

Where companies work across different nations, the amount of levy (for example) available for that company to spend through the digital account system in England, will reflect the proportion of the salary bill payable to employees living there. How they can access (or otherwise benefit from) any of their contributions to the fund, from other areas of the UK, remains to be seen.

What does it mean for Employers?

For those larger employers, who are likely to be contributing to the fund, this raises significant budgetary issues. Some have suggested that it may be the employees in those companies (and particularly the lower paid ones) who ultimately suffer, if any wage growth stalls as a result. In respect of those companies who operate out of England, with staff living there, there is at least a clear scheme being prepared allowing businesses to assess what they can get out of the levy. The detail on how the Scottish Government intends to use its allocation of funds remains to be seen.

That said, there does seem to have already been some strategic reinforcement of Scotland’s national ‘skills’ body, Skills Development Scotland (SDS). This is in the form of the establishment of an employer led Scottish Apprenticeship Advisory Board (SAAB), to strengthen the role of employers in apprenticeships. SDS and SAAB have said they will continue to engage with the Scottish Government, employers and other stakeholders in advance of the levy’s introduction.

While the finer detail remains unclear, in respect of how the funding will be used, it is clear this already growing agenda is set to receive a significant boost. Businesses may therefore wish to consider how they might be able to capitalise on available opportunities and funding. This may, in turn, require some thought being given and advice taken on (for example) overall staff structure and succession planning. This is particularly the case for those employers likely to contribute to the fund who, whether currently engaged with the skills/apprenticeship agenda or not, might also be entitled to expect more detail with only 6 months to go before the levy’s introduction.

If you have any queries about these developments please get in touch with a member of the Stronachs Employment team.

Euan Smith, Associate

Chambers Leading Firm 2019

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