New payroll tax – will you be paying an additional 0.5% of your wage bill from April?
A new form of tax, known as the Apprenticeship Levy, will hit many employers from 6 April 2017. The funds generated will be used by the Government to help pay for apprenticeship training costs.
Employers will firstly want to assess whether they will be liable to pay this additional tax and secondly, consider whether they can derive any benefit from it.
How much does an employer have to pay?
The levy will be 0.5% of the employer’s total payroll bill. This will include basic salary but also things like bonus, commission and pension contributions. However, each group of employers will receive an allowance of £15,000 to offset against their liabilities. This effectively means that only those with a wage bill of more than £3million will be liable to pay the new tax.
But what about employers who do not have apprentices?
They are still caught by the new tax rules. The levy will apply to all employers, irrespective of their sector and regardless of whether they have or intend to have any apprentices.
Can an employer recoup any of this additional tax?
The good news is that if the employer has or takes on apprentices, they are likely to be able to clawback at least some of this tax.
Once paid, the tax can be put into an account via the Digital Apprenticeship Service (which launches in January 2017) and in addition, those funds will be topped up by 10% by the Government. Additional top ups may also be available, for example to employers who employ 16 to 18 year olds.
The funds in the account can be used to pay for approved training for apprentices. However, the funds do need to be used within 18 months of being deposited in the account.
What is an apprenticeship?
Essentially, it is formal relationship where the individual undertakes a combination of work and training. In many cases, an apprentice must not only be given on-the-job training but spend a proportion of their time (usually around 20%) doing approved off-the-job training too.
There are many different types of apprenticeship, from the traditional roles of plumbing and construction work to professional services (such as an accountant or solicitor). In the hospitality and leisure sector, common apprenticeships range from commis chefs and chef de partie to hospitality supervisors.
Where can I find more information?
Government guidance is available at www.gov.uk/topic/further-education-skills/ apprenticeships. Given that the Apprenticeship Levy is still in its conception stage, the exact mechanics have yet to be published so do ensure you keep up to date with the latest developments in this area.
Are there special rules on employing an apprentice?
In many ways, an apprentice is just like any other employee. However, in some situations they can have additional rights, for example enhanced dismissal protections (namely that the employer cannot dismiss the apprentice unless there has been a very serious breach or some form of frustrating event meaning that the employer’s ability to teach the individual is fundamentally undermined). From the employer’s perspective, it is therefore very important to correctly categorise and document the form of apprenticeship to ensure that such enhanced protections are not inadvertently given.
Is their an age limit on being an apprentice?
No, an apprentice can be any age. It is important to remember that apprenticeships should not just be offered to the young, as this could lead to age discrimination claims.
What pay is an apprentice entitled to?
An apprentice who is either under 19 years old or in the first year of their apprenticeship is entitled to receive a minimum of £3.30 per hour. Otherwise, the usual national minimum wage bands apply, currently being £3.87 for 16 and 17 year olds, £5.30 for 18 to 20 year olds and £6.70 for those 21 and over. Also remember that the new Living Wage rates now apply to those aged 25 and over (currently being £7.20). These rates will increase from October 2016.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.