Despite the impending launch of the Apprenticeship Levy, many companies are still uncertain about its possible ramifications for their organisation.
This is particularly true for ‘borderline’ cases, whose workforce isn’t necessarily made up of permanent employees, or are undergoing sizeable changes in their paybill in the near future.
In this guide, we’ll take a look at how the Levy will impact organisations with fluctuating workforces, those who utilise contract, agency and temporary workers and other borderline cases.
What if agency, contract or temporary workers make up a significant portion of my pay bill?
The Levy is a payroll tax, which means it’s blind to the amount and type of workers
that organisations employ - but rather focuses on the entire value of their payroll.
As such, employers will be required to pay the 0.5% tax on their payroll even for agency or temporary workers. Unfortunately, very few non-permanent employees will be able to take advantage of the training opportunities offered by the forthcoming Apprenticeship reforms since they won’t meet the eligibility criteria of 12 months of employment.
There’s been some concern that this setup will disproportionately affect certain industries that have traditionally relied upon temporary workers. Recruitment agencies have been particularly vocal in their opposition to the system, with the Association of Recruitment Consultancies (ARC) stating that the industry’s contributions would be levied on a “far higher proportion of turnover” than any other type of company.
“This comes at a time when the government has already placed responsibility for agency worker tax compliance generally on agencies and is now extending that responsibility to contractor tax under IR35, as announced in the Autumn Statement, so also affecting contractor agencies. One could be forgiven for believing that the recruitment supply sector is deliberately being targeted as a cash cow,” said ARC chairman Adrian Marlowe.
What if I’m planning on significantly expanding or decreasing my workforce in the near future?
While eligibility criteria for the Levy is based on annual payroll, employers
planning changes to their workforce that takes them under or over the scope
of the Levy will need to do their due diligence.
The Levy will be payable each month to HMRC, through Pay as You Earn (PAYE) in addition to an employer’s income tax and National Insurance payments. The government’s £15,000 allowance, to offset the Levy, will also accumulate each month (spreading the payments at £1,250 per month). If any of the allowance
is unused in a month it is carried over to the next month in that tax year.
In practice, a high monthly pay bill that exceeds any accumulated allowance could trigger the need to pay the Levy in that period. However, as long as your total annual pay bill doesn’t exceed £3 million, your organisation will receive a credit back against any PAYE charges you’ve made on Levy payments.
What if my workforce is distributed across the UK?
While the Levy is a tax, and therefore applied UK-wide, policies on training and skills have been devolved to the country’s constituent nations. In effect, this means that companies whose workforce is spread across Britain have got something of the short straw, in that they’ll pay the Levy on the entirety of their UK workforce, but only be able to access the funds (and the extra 10% added by the government) on the amount covering their workforce in England.
Devolved nations will be getting a share of the Levy, which will be distributed
via the Barnett formula, however, they’re as yet undecided on exactly how they’ll deploy this. For more information on this topic, be sure to check out our stand-alone guide on how the Apprenticeship Levy will affect companies with a UK-wide workforce.
If you have an employee who lives in Scotland or Wales, but their main place of work is in England (as determined by HMRC), they will be eligible for Apprenticeship funding via the Levy (or co-investment). However, they will need to be signed up for a framework or standard that’s approved for delivery in England.
The complexities of the Levy can be difficult to get to grips with and even more so for companies skirting the edges of its scope. So if you’ve got any questions about the topics we’ve covered above, don’t hesitate to let us know via Twitter or LinkedIn.
And if you’re looking for practical, hands-on advice and support in managing your Levy and Apprenticeship training, be sure to get in touch with our expert team today: