Our employment team works with employers across a range of businesses in the engineering and manufacturing sector, advising on all types of employment law matters. Throughout the month of March we will be publishing a series of articles looking at the key employment law issues currently impacting upon the manufacturing sector.

As National Apprenticeship Week 2017 (6-10 March) draws to an end, we look at the introduction of the Government’s new Apprenticeship Levy. The levy comes into force on 6 April 2017 and it is therefore important for employers to understand it and how it will impact upon their business.

Manufacturing and engineering are areas commonly linked to apprenticeships, with 15% of all 2015/16 apprenticeship starters in the UK being within the manufacturing industry. The levy could therefore have significant implications for employers within the sector and has attracted mixed responses:

  • 46% say that they will increase their intake of apprenticeships as a result of the levy
  • 26% believe that the levy could encourage more young people to choose apprenticeships
  • 75% are concerned that they will not benefit from the levy
  • 61% are concerned by its financial implications.

What is the levy?

From 6 April 2017 employers with an annual pay bill of £3 million will be required to pay 0.5% of their annual pay bill as Apprenticeship Levy. The annual pay bill is all payments to employees that are subject to employer National Insurance contributions (i.e. wages, bonuses and commission). Each employer will have a £15,000 allowance per year which is offset against the amount payable.

What is the levy for?

There has reportedly been a steady decline in the amount and quality of training by employers over the last 20 years. The levy has been introduced as a way to reverse this trend, by funding higher-quality apprenticeships and making an apprenticeship a viable alternative to university as part of the government’s drive to train three million new apprentices by 2020.

Who will the levy apply to?

The levy will apply to all employers with an annual pay bill of more than £3 million. At 6 April 2017 and each year thereafter employers will need to calculate whether their annual pay bill in the previous tax year was more than £3 million, or whether they think their annual pay bill for the coming tax year will be more than £3 million. If so, the employer will need to start paying the Apprenticeship Levy.

If an employer’s annual pay bill unexpectedly increases to more than £3 million during the year it will need to start reporting at that point. If an employer’s annual pay bill turns out to be less than £3 million, once it has started paying Apprenticeship Levy it will need to continue until the end of the tax year (but will receive a refund as a PAYE credit).

How is the levy calculated?

The payment will be payable on a monthly basis from 6 April 2017. Each month employers will need to calculate how much levy is payable for that month, by working out 0.5% of its monthly pay bill and deducting 1/12th of the £15,000 yearly allowance from this. The amount payable will need to be reported to HRMC and paid each month through the PAYE process.

Then what?

The government will create an online portal (the Digital Apprenticeship Service) which employers can use to search apprenticeships, find accredited training providers and pay for training with digital vouchers.

About the author

Ian Besant Consultant

Ian advises on the full range of employment law issues as well as conducting his own advocacy before the Employment Tribunal and has particular expertise in Employment Appeal Tribunal cases.