Apprenticeship Levy – Are you ready for April 2017?
The apprenticeship levy comes in on 6 April and applies to all companies with an annual pay bill of over £3m. Are you ready for the change?
What is an ‘apprenticeship’?
An apprenticeship is a type of employment that is accompanied by a skills development programme. This training allows the apprentice to gain the technical knowledge, practical experience and wider skills that set them up for both their immediate job and their future career.
Why is the levy being put in place?
The Government is keen to increase the number of apprentices to 3 million by 2020 with a view to reducing skills gaps, increasing youth employment and boosting productivity. The Government will therefore be introducing the Apprenticeship Levy in April 2017 to fund apprenticeships.
What companies does the Apprenticeship Levy apply to?
If any company (including Limited Liability Partnerships) has an annual wage bill of more than £3 million in the previous tax year, they are liable to pay a levy of 0.5% of the total. This is in addition to any agreement a company may have with other bodies.
What do we need to do to comply?
The company must calculate the levy in April 2017 and then declare and start paying the required amount, on a monthly basis, in their usual PAYE payment to HMRC in May 2017, alongside tax and National Insurance. The company does not have to pay corporation tax on this payment.
Are we entitled to an annual allowance?
Once declared, companies can get access to funding for apprenticeships through a new apprenticeship service account. Companies are also entitled to receive an annual allowance of £15,000 paid monthly, to be used within 18 months of funding. This can only be used on actual training and not towards salaries. For connected or group companies, they will only receive one annual allowance of £15,000, but how it is split between the groups can be determined by them.
What are the penalties associated?
Anti-avoidance measures are expected to combat companies trying to avoid paying the levy or obtain an allowance that they are not entitled to, although there are not many details available as yet. There will be an appeal process which companies can take advantage of if they do not agree with HMRC’s decision.
All of this of course paves the way for Regulations to deal with recovery, including from third parties, and the requirement of information to be provided to HMRC.
How does this change an apprenticeship agreement?
Apprentices should still receive a contract. The agreement is similar to a standard employment contract and should include the clauses required by the Employment Rights Act 1996. In addition, it must include details of the training offer and the qualifying framework it is connected to. It must also be provided to the apprentice in writing.
Provided these criteria are met, the apprentice can be treated as other employees regarding holiday entitlement, sick pay, conduct and performance. The apprentice will also enjoy the usual employment rights such as protection from unfair dismissal and discrimination. The key difference is that an apprentice can’t be made redundant unless the company is closing completely. A down turn in work and difficulties in paying them are not sufficient reasons, as the purpose of the contract is to train them.
Apprenticeship agreements should be fixed term in nature to cover the length of training. There is no obligation to keep someone on past the training but, of course, if you can benefit from the experience they have gained, then all the better.
Be careful if you have an apprentice working without an apprenticeship agreement. Common law apprentices arise where there is an arrangement to train someone and there is no agreement in place that meets the statutory obligations. These arrangements are usually for a fixed period and cannot be terminated early unless the apprentice is guilty of extreme misconduct which means they cannot be taught. Such arrangements can be in writing or verbal and may not mention apprentice. The test for misconduct is much higher for a common law apprentice and must be related to the ability to train them specifically. Apprentices would also be entitled to bring a claim for breach of contract rather than unfair dismissal, which could be more costly.