READY STEADY LEVY: Have you started to think about how the apprenticeship levy will impact you as a business? Presenters: Teresa Bentley – LMG Daniel Pedley – CII Verity O’keefe – EEF Neil Withey - EEF Teresa Bentley 23 rd March 2017
OUR MARKET AND THE LEVY Levy awareness 85% Vast majority of firms will be levy payers
READY, STEADY, LEVY! London Market Group 23rd March 2017 Verity O’Keefe & Neil Withey
PART 1: THE APPRENTICESHIP LEVY
PAYING INTO THE APPRENTICESHIP LEVY – YOUR LEVY LIABILITY
SCOPE OF THE LEVY • The Levy applies to all employers in England, Wales, Scotland and Northern Ireland • No exemptions • It’s a tax • The amount of that tax is 0.5% of your pay bill • You don’t pay the first £15,000 of the tax which means a pay bill of: • < £3m • > £3m • A company that is part of a group will pay the Levy if collectively their pay bill is over £3m but “connected companies” only get one £15,000 deduction
NON-LEVY PAYERS • If you are not in scope of the Levy you will be required to co-invest in apprenticeship training • If you want to buy apprenticeship training you will be required to contribute 10% of the cost with Government topping up the remaining 90% • The amount to which the Government will “top up” will be subject to caps in the same way as for Levy payers
‘NEED TO KNOW ’ DEFINITIONS • “ Employer ” is a person who has a liability to pay the secondary NICs • ‘Pay bill’ : based on total employee earnings subject to Class 1 secondary NICs
EXAMPLE • The Levy is set at 0.5% of your total pay bill • Less a £15,000 deduction Example: • Company A has a pay bill of £10m • Levy at 0.5% = £50,000 • Less the £15,000 deduction • Actual Levy payable = £35,000
WHAT IS INCLUDED IN THE PAY BILL? • All payments to employees that are subject to employer Class 1 secondary National Insurance Contributions • This includes wages, bonuses and commission. • You must include payments to: - all employees earning below the lower earnings limit - employees under the age of 21 - apprentices under the age of 25
CONNECTED COMPANIES • Two or more connected companies are entitled to ONE allowance of £15k • The pay bills of connected companies are “pooled” towards the £3 million total • It is for the connected companies to decide who claims the allowance • Election made at the first Levy declaration • Cannot then change in that financial year
CONNECTED COMPANIES: EXAMPLE ABC Ltd is the Parent Company of Company A, Company B and Company C . Collectively ABC Ltd the group has a pay bill of £10m . ABC Ltd has Parent decided that Co mpany C will receive all of company the £15,000 allowance . Therefore the three companies’ Levy liabilities would be as follows: Company A : 0.5% of £2m = £10,000 Levy liability Company Company Company B C A Company B : 0.5% of £1m = £5,000 Levy £7m pay £1m pay £2m pay liability bill bill bill Company C : 0.5% of £7m = (minus £15,000) = £20,000 Levy liability
IMPACT OF CONNECTED COMPANIES RULE No. of In scope of the In scope of the Not in Don't know employees Levy as a single Levy because scope of if in scope in company company part of a group the Levy of the Levy 1-50 7.7% 7.7% 84.6% 0.0% 51-100 9.1% 18.2% 63.6% 9.1% 101-250 45.2% 48.4% 0.0% 6.5% 251+ 40.7% 59.3% 0.0% 0.0% Source: EEF Apprenticeship Levy Survey 2016-17
WHAT YOU GET BACK – YOUR LEVY CREDIT
THE “SWEETENER” – A 10% TOP UP FROM GOVERNMENT • Government stated that employers that pay into the Levy will “get back more than they put in” • This is by way of a 10% top up on whatever is in your Levy account on a monthly basis • If you have £100 paid into your digital account each month, you will actually receive £110 • Simple • Now let’s move on to the not so simple
THE ENGLISH “FRACTION” • The Levy applies to your UK pay bill • But the principle of getting back more than you put in only applies to England • What you then get back in terms of digital funds only applies to the English “fraction” of your pay bill – i.e. the proportion of your pay bill that equates to employees with an English home postcode
TIMING – WHEN DO YOU START PAYING THE LEVY?
WHEN WILL YOU START PAYING INTO THE LEVY? • Employers pay from April 2017 • Employers declare to HMRC Levy payable based on their cumulative pay bill over the financial year • First declaration will be May 2017 for their April pay bill • You will report your Levy each month via payroll using your Employer Payment Summary and include: o the amount of the Levy allowance you’ve allocated to that PAYE scheme o the amount of Apprenticeship Levy you owe to date in the current tax year
SPENDING YOUR LEVY MONEY
HOW MUCH CAN YOU SPEND ON APPRENTICESHIP TRAINING? • Frameworks and standards currently funded differently • From May 2017, one single funding system • New funding system will be made up of 15 funding bands • Upper limits (caps) will range from £1,500 to £27,000 • All apprenticeships will placed in a band • Employers cannot spend more Levy than the upper limit • Government funding is limited to the upper limit • Employers must negotiate price with a provider Apprenticeships started before the 1 st May 2017 funded under current model. Apprenticeships started after funded under new model
WHAT DOES THIS MEAN? • Levy paying employers receive funds in a digital account • They then need to select a provider and negotiate a price • If the price is below the cap, then all the funding will be covered • If the price is above the cap, then the employer pays the excess, and the remainder comes from the digital account • Digital funds will leave the employer’s account on a monthly basis, with the first payment made once the training has commenced. • 20% of the cost of training will be held back until the apprentice completes their apprenticeship • The remaining cost will leave the digital account on a monthly basis. The remaining amount will be divided by the number of months it takes to deliver that standard or framework
THE FUNDING BANDS Number Band Upper Limit Number Band Upper Limit Travel Services: Insurance: Leisure & Tourism Practitioner 1 £1,500 9 £9,000 Level 2 Level 3 (Framework) (Standard) 2 £2,000 10 £12,000 3 £2,500 11 £15,000 4 £3,000 12 £18,000 5 £3,500 13 £21,000 Aerospace: Aerospace Financial Services: 6 £4,000 14 £24,000 Manufacturing Credit Controller Fitter Level 2 7 £5,000 15 £27,000 Level 3 (Standard) (Standard) 8 £6,000
SHELF LIFE OF YOUR DIGITAL FUNDS • Digital funds will first arrive in your account in May 2017, based on your April pay bill • Your 10% top up will be added • You can chose when you want to start training • You may, for example, train apprentices by academic year and not start training until September • However, digital funds only last 24 months • Therefore funds that enter your account in May 2017 will expire in May 2019 • Funds are use it or lose it • When you do start to train apprentices, the oldest funds will be used first
EXAMPLE: A COMPANY LTD Once the digital funds are in an employer’s account they have 24 months to spend them else they will expire The company will receive £8,808 of A.Company Ltd has a levy credit each year. paybill of £5m. 80% of A.Company wants to train 0.5% of paybill (£25k) less £15k their paybill is paid to 1 apprentice in allowance = £10,000 divided by 12 is employees that live in Engineering Manufacture £833. England – Fabrication & Welding £833 x 80% (England fraction) + 10% at Level 3 top up =£734 a month For this The cost is spread out On the final month (month 18) the apprenticeship they monthly, therefore the cost of payment will be £222 + 20% will be able to spend training for the first 17 months withheld (£1000). Final payment = £5,000 over 18 is £222. This is taken from the £1222 months. 20% of this company’s digital account (£1000) is held back until completion. Employers no longer agree a payment plan When looking at spend, with their providers. employers must take Monthly payments are into account the taken automatically. “completion months” This requires some when considerably more careful profiling £ will come out of their accounts
THE “WHAT IF” QUESTIONS…
WHAT IF… YOU HAVE DIGITAL FUNDS LEFT OVER? • For the first year, employers cannot transfer their unused digital funds • From 2018, employers will be able to transfer up to 10% of their annual digital funds • This includes transferring funds to Apprenticeship Training Agencies (ATAs) • EEF sits on the Government’s Steering Group looking at how transferring of funds can work in the easier, simplest way • We are also lobbying Government to increase the amount to 50%
WHAT IF… YOU SPEND ALL YOUR DIGITAL FUNDS? • 75% of manufacturers say their biggest concern with the Apprenticeship Levy is over spending on their Levy digital funds • If, however, you do spend all your digital funds, you will move into co-investment • Under co-investment, you will pay 10% and the government will pay the remaining 90% • However, this 10% of training is IN ADDITION to the monthly amount you will still be paying in under the Levy
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