The key facts are straightforward: from 6 April 2017, employers with a wage bill of more than £3 million will pay a 0.5 per cent levy to fund apprenticeships. The government’s aim is to raise £3bn a year to create three million more ‘high quality’ apprenticeships by 2020.

What is the apprenticeship levy?

• The levy is essentially a new tax to be introduced in April 2017, the purpose of which is to fund an increase in the number and quality of apprenticeships.

• The levy will apply to all UK employers in both the private and public sectors, regardless of whether or not they have apprentices. It will be payable on annual pay bills of more than £3 million.

•For those employers within the construction and engineering sector who already pay into an existing levy scheme, a consultation is expected to take place on whether the existing arrangements will be affected when the new apprenticeship levy comes into force.

How will it work?

• The levy will be charged at a rate of 0.5% of an employer’s pay bill. Levy payments will be collected monthly by HMRC though PAYE alongside tax and National Insurance.

• Employers will have a fixed annual allowance of £15,000 to offset against their levy payment. Employers who operate multiple payrolls will only be able to claim one allowance for the levy.

• Employers’ funding for apprenticeship training in England will then be made available via a new Digital Apprenticeship Service account. The government will apply a 10% top-up to monthly funds entering levy paying employer’s digital accounts.

• Employers can then use the funds in their account to pay for training, assessment and certification for apprenticeships. This will be subject to a cap depending on the level and type of apprenticeship.

• Employers will not, however, be able to use the funding to cover all the costs associated with taking on an apprentice, such as overheads, supervision costs and apprentices’ wages.

• Employers may have to contribute additional funds where the cost of the training they wish to buy is greater than the funding cap for a particular apprenticeship or where they have spent all of their levy contribution and all of their top-up and wish to spend more on additional apprenticeship training.

What support will be available?

The Digital Apprenticeship Service will also support employers to:

• Identify a training provider(s) to deliver training (the funding can only be spent on an approved provider)

• Choose an apprenticeship training course; and

• Find a candidate by posting apprenticeship vacancies.

The intention is that the main functions of this service will be in place by April 2017.

In addition a new independent body, the Institute for Apprenticeships, is being set up to regulate the quality of apprenticeships. The Institute will be able to advise on setting funding caps, approving apprenticeship standards and assessments plans. Again, the intention is that it will be fully operational by April 2017.

Pensions, apprenticeships, employee expenses and benefits are some of the aspects of the 2014 Budget which will impact your business and HR

Last month’s budget dictated that income taxes and thresholds will increase this and next year. The personal tax allowance is expected to rise to £10,000 in 2014/2015 and up to £10,500 in 2015/2016 with the highest basic rate remaining at £31,865 this new tax year, slightly reducing to £31,785 in 2015/16. The highest rate tax threshold is expected to rise to £41,865 this April and by a further 1% in April 2015.  Apprenticeship Grants for Employers scheme is to be extended and will provide grants for employers to create an additional 100,000 apprenticeships by 2015/16. In relation to how this might affect Scotland, the Chancellor of the Exchequer has set out plans to extend the grant for small businesses in order to support 100,000 apprenticeships. Consequential to the power devolved into the Scottish Parliament, Holyrood will receive funding as a result.

There will be wide-ranging pension reforms taking place which will enable individuals to access Defined Contribution (DC) pension savings “as they wish from the point of retirement”. The DC scheme is a retirement plan in which the employer, employee or both make contributions on a regular basis where individual accounts are set up for participants and benefits are based on the amounts credited to these accounts. The government will introduce a new duty on both trust-based pension schemes and pension providers to offer a “guidance guarantee” which will offer members who retire with the DC pension scheme to have free and impartial face-to-face guidance on their choices when they reach retirement.

There will be a new £500 tax exemption for employer-funded medical treatments for employees applying from October 2014. The employer will not have to go through a formal process to claim the exemption which will be available to all employees.

In terms of employee expenses and benefits, a consultation will take place in 2015 on a package of four simplifications of the system.  Some of these proposed simplifications will allow employers to payroll certain benefits and expenses voluntarily and replace the expenses dispensation scheme with a Reimbursed Expenses Exemption. Company car benefits will increase by 2% in 2017-18 and to a maximum of 37% in 2018-19. Completely tax-free childcare will be introduced from 2015 encouraging more parents back to work, with existing relief from tax and NIC workplace nurseries continuing unaffected. PAYE regulations published before the Budget are expected to have an effect on employers with a few employees being able to report PAYE information on the last pay day in the tax month rather than on the date of each payment as well as RTI reporting being applied to certain employees who deduct tax and NIC from their own employment.

In addition, there will also be an increase in the threshold for small loans exemption from £5,000 to £10,000 for employer provided benefits and from April 2014 the maximum monthly limit that an employee can contribute to a Save-As-You-Earn scheme (SAYE) will increase from £250 to £500.

For further advice please contact Solve.