COMPLIANCE
The apprenticeship levy: maximising the benefits
Susan Ball, tax partner and Richard Travis-Nash, associate director, taxation from RSM UK explain the different ways employers can maximise the benefits of the apprenticeship levy
T he apprenticeship levy has been used effectively by employers. Is it just another tax on employers or a valuable part of their training budget? The answer is more nuanced than that and will vary for each employee. How does it work? The levy is intended to fund qualifying apprenticeships, courses and qualifications offered to employees by registered education providers. In simple terms, employers with an with us since April 2017, but is still often misunderstood and not always annual pay bill in excess of £3 million must pay the levy, which is calculated at 0.5% of pay above this threshold. The pay to be considered for the levy is all pay which attracts a secondary class 1 National Insurance contribution (NIC) charge, so the bulk of employee remuneration, but not benefits, termination payments or items included in a pay as you earn (PAYE) settlement agreement. The apprenticeship levy is collected through real time information, calculated and paid each pay period. It’s a relatively simple concept, but errors still arise. But what sort of issues do we commonly see?
What could go wrong? The principal issue we see is in a group setting. The £3 million threshold, which becomes an effective £15,000 ‘allowance’ (£3 million x 0.5%), can only be applied to one employing entity in a group of connected employers. Connected broadly means under common ownership or owned by one another. The allowance can be split between the companies in the group, but this division must be decided upon and notified to HM Revenue and Customs (HMRC) before the start of the tax year and cannot then be changed for the remainder of the tax year. Clearly, these amounts can quickly add up, and there’s very little scope for mitigation. The issue tends to arise when newly acquired businesses aren’t fully integrated from a controls and governance point of view with the parent and wider group. Failing to capture all relevant pay elements that count towards the pay bill calculation is another issue, but one which has generally been ironed out over the years since the introduction of the levy. Of course, where settlements with HMRC are required, for failure to properly account for PAYE / NICs, the apprenticeship levy will also need to be included. The other side of the coin is use of
the levy funds. These sit in an employer’s apprenticeship levy account for two years from payment and are intended for training courses, qualifications and employee development, which meet the criteria for approved apprenticeship standards. There are now more than 700 such standards, yet many employers aren’t maximising their apprenticeship levy funds, resulting in the levy being just another tax, another cost of employment. So, is the levy failing in its purpose? Are employers not making full use of their funds, or getting it wrong? Workforce planning We’re seeing more and more clients adopt apprenticeship schemes, some out of necessity and others who are curious about what’s on offer, but typically without appropriate consideration for workforce planning. Reasons like ‘they just leave once they’re qualified’ seem to make those in business reluctant to think longer term, but apprenticeships play a pivotal role in shaping talent strategies for organisations and there’s a latent source of talent waiting to be leveraged. Closing the skills gap remains a key driver for the levy, with unemployment rates down but a high number of vacancies remaining. As companies struggle to
| Professional in Payroll, Pensions and Reward | June 2024 | Issue 101 26
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