The Apprenticeship Levy

One of the many changes that will come into effect in April 2017 is the Apprenticeship Levy, which has been somewhat overshadowed by the off-payroll reform in the public sector. This new levy will affect both the public and private sector with payments starting from May 2017. The government has pledged to create 3 million new apprenticeships as well creating a national fund pot for apprenticeship training by 2020.  In order to raise the funds, they have decided to impose a 0.5% charge on all companies whose payroll exceeds £3 million annually. The levy will be collected by HMRC on a monthly basis through PAYE.

Businesses with a payroll bill of under £3 million per annum remain unaffected due to the £15,000 exemption currently in place. As the Government will also be paying into the fund, it will allow businesses who create apprentice roles to claim around £1.10 for every £1 they pay into the levy.
Recruitment agencies and umbrella companies will also be affected

The Apprenticeship Levy, however, does not take into account recruitment agencies and umbrella companies whose payroll is artificially inflated due to the nature of their work.

What’s more is that it will be hard for both recruitment agencies and umbrella companies to access the fund as the possibility of creating a ‘quality’ apprenticeship is very limited. Representative bodies have campaigned for the apprentice levy to be changed so that recruitment and umbrella companies are excluded. However, HMRC has emphasised on trying to achieve simplicity with its services and as such is not keen on creating exemptions which could potentially undermine their aim to keep everything simple.
How will the Apprenticeship Levy impact contractors?

The Apprenticeship Levy is going to be paid by the employer in the same way that employer NI is being contributed. Therefore, contractors who are with an umbrella company should expect an increase in their umbrella’s employment cost, which will be showing in their income reconciliation as the levy will not be shown on their payslip.

Contractors with a PSC will not be affected but public sector contractors who fall inside the Off-Payroll Rule could be caught as the fee payers are likely to have a payroll bill of over £3 million.