Policy paper

Apprenticeship Levy

Published 4 February 2016

Who is likely to be affected

This will affect employers in all sectors. The levy will only be paid on annual paybills in excess of £3 million, and so less than 2% of UK employers will pay it.

General description of the measure

The Apprenticeship Levy will be a levy on UK employers to fund new apprenticeships. In England, control of apprenticeship funding will be put in the hands of employers through the Digital Apprenticeship Service. The levy will be charged at a rate of 0.5% of an employer’s paybill. Each employer will receive an allowance of £15,000 to offset against their levy payment. It will be introduced in April 2017.

Policy objective

The government is committed to boosting productivity by investing in human capital. As part of this, the government is committed to developing vocational skills, and to increasing the quantity and quality of apprenticeships. It has committed to an additional 3 million apprenticeship starts in England by 2020. The levy will help to deliver new apprenticeships and it will support quality training by putting employers at the centre of the system. Employers who are committed to training will be able to get back more than they put in by training sufficient numbers of apprentices.

Background to the measure

The Apprenticeship Levy was announced at Summer Budget 2015, and at Autumn Statement 2015 it was announced that it would come into effect in April 2017. A consultation was held between 21 August 2015 and 2 October 2015 to hear from employers how the levy should work in practice. At Autumn Statement 2014 the government announced it would abolish employer Class 1 National Insurance Contributions for apprentices aged under 25 on earnings up to the weekly limit of £827 from 2016 to 2017.

Detailed proposal

Operative date

The levy will have effect on and after 6 April 2017.

Current law

The Apprenticeship Levy is a new measure and there is no existing legislation.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 and will provide for a levy to be charged on employers’ paybills at a rate of 0.5%. The levy will be payable through Pay As You Earn (PAYE) and will be payable alongside income tax and National Insurance. To keep the process as simple as possible “paybill” will be based on total employee earnings subject to Class 1 secondary NICs.

Each employer will receive one annual allowance of £15,000 to offset against their levy payment. There will be a connected persons rule, similar the Employment Allowance connected persons rule, so employers who operate multiple payrolls will only be able to claim one allowance.

Summary of impacts

Exchequer impact (£m)

2015 to 2016 2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021
0 0 +2,730 +2,845 +2,970 +3,095

These figures are set out in Table 3.1 of Autumn Statement 2015 and have been certified by the Office of Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2015.

Economic impact

It is expected that the levy will support productivity growth through the increase in training. It may have a near-term impact in reducing earnings growth, although by supporting increased productivity, it is expected that the levy will lead to increased profitability for businesses, and increased wages over the long-term.

Impact on individuals, households and families

The measure is not expected to impact on family formation, stability or breakdown. There are no direct impacts on individuals and households However, it is expected that the Apprenticeship Levy will create more apprenticeship vacancies in the near term.

Equalities impacts

It is not anticipated that there will be any direct equalities impacts on the groups sharing protected characteristics.

Impact on business including civil society organisations

The levy will help to support quality training, and employers who are committed to training will be able to get more out than they pay in levy. The government wants this measure to be administratively simple, and therefore employers will pay and report Levy payments through their normal payroll processes, using PAYE real time information (RTI). The Apprenticeship Levy will also operate on the basis of known definitions which employers will already use in relation to National Insurance contributions. The levy will be paid by less than 2% of UK employers, i.e. those who have annual paybills of more than £3 million. For employers paying the levy, the measure is expected to have some impact on administration costs and the impact will vary by employer, depending on the size of their paybill. The policy intention is that they will calculate and pay the levy on a monthly basis. HM Revenue and Customs (HMRC) will engage with employers to discuss and assess the impacts on them.

Operational impact (£m) (HMRC or other)

The operational impact on HMRC will not be significant. The levy will be collected through PAYE RTI employer submissions. There will be also be a need to change HMRC’s accounting systems. HMRC’s costs for setting up the levy are estimated at £7 million.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected through employer’s tax returns.

Further advice

If you have any questions about this change, please contact Joanne Collings on Telephone: 03000 575869 or email: joanne.collings@hmrc.gsi.gov.uk.

Declaration

David Gauke MP, Financial Secretary to the Treasury, has read this Tax Information and Impact Note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.