Apprenticeship levy update

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The apprenticeship levy came into force on 6 April 2017 and the first levy payments will be due in May 2017 in respect of the April 2017 pay period. There are concerns that some companies are unaware of their obligations under the levy or that, where two or more companies are ‘connected’ they will only receive one annual £15,000 levy allowance between them.

Whilst the levy applies to all employers, the £15,000 allowance means that only companies with a pay bill above £3 million will pay any levy (subject to rules on connected companies). It is possible that employers with an annual pay bill of less than £3 million will, in some circumstances, pay some levy at some point during the year or that a group of companies which, together, have a pay bill of less than £3 million will also pay the levy.

Whilst many employers are up to speed with their levy obligations, research by City and Guilds has found that one third of UK employers eligible to pay the levy remain unaware of it. One of the areas for confusion seems to be where group companies are ‘connected’.

Companies are deemed to be connected if one has control of the other, or if they are both under the control of the same person (or company).  Broadly speaking, a person (or company) is treated as having control of a company if (whether directly or indirectly) they possess the greater part of the share capital or voting power of the company.  Each of the companies in a group of companies is therefore likely to be a connected company for this purpose. It is up to the connected companies to decide on the proportions in which the £15,000 annual allowance is to be split between them.

For example, two companies are connected (company A and company B). Company A has a pay bill of £3 million and company B has a pay bill of £1 million.  If company A used all of the £15,000 allowance it would not have to pay any levy.  Company B would, however, have to pay the 0.5% levy on all of its £1 million pay bill as there would be no allowance left over for it to benefit from.

Many employers (especially those in the financial services, engineering, legal and accountancy sectors) are capitalising on the funding opportunities that the new levy generates. For example, some employers plan to convert existing graduate schemes into apprenticeship programmes which will be re-branded as “graduate-level apprenticeships”.

Employers should consider how they can best capitalise on the levy in order to subsidise apprenticeship costs and training.

Offence of wrongly advertising work as a statutory apprenticeship in force from 1 April 2017

Having invested in setting up the new apprenticeship scheme, the Government is keen to protect the term ‘apprenticeship’ from misuse and to prevent low quality, non-compliant courses from being described as apprenticeships. It has therefore introduced a new law (in effect from 1 April 2017) creating an offence of providing or offering a course or training and describing it as an apprenticeship when it does not meet the statutory requirements.

If you would like further advice on this topic please contact David Smedley or Andrew Rayment.