The apprenticeship levy, identified by ICAEW as by far the biggest revenue raiser in the Chancellor’s autumn statement with expectations of £3b for Treasury coffers, is under attack from businesses as a disguised form of payroll tax
George Osborne said the levy will raise £3bn a year by 2020/2021, and will be used to fund 3m apprentices in the workplace by 2020, up from 2m currently.
It will be set at 0.5% of an employer’s payroll costs, with an additional £15,000 allowance for each employer which can be used to offset the levy, with Osborne saying this meant that 98% of employers would not be affected by the new charge.
The levy will be collected via PAYE alongside income tax and national insurance contributions. A connected persons rule will apply, similar to the employment allowance connected persons rule, to ensure that employers with multiple payrolls can only access one £15,000 allowance. The payroll cost will be based on earnings, excluding benefits in kind.
ICAEW’s calculations show the apprenticeship level will impact employers with a payroll over £3m from April 2017.
Reaction to the news of the levy has been largely hostile, with concerns raised about the administrative burden and whether the money raised will be used to create a more skilled workforce.
Tim Walford-Fitzgerald, tax principal, HW Fisher & Company, said: ‘"National insurance has never officially been a tax. However, we now have a further increase, which is neither tax nor national insurance, in the shape of the 0.5% Apprenticeship Levy. "Whatever it is called, it will certainly feel like a further employment tax for larger businesses.’
Simon Walker, Director General of the IoD, agreed, describing the apprenticeship levy as ‘the major business tax announcement of this autumn statement’, and claiming it represents a new payroll tax.
‘At 0.5% of payroll it will be a big new cost for many companies, including medium-sized ones. We are very concerned by the government’s assumption that a quarter of the money collected will be spent on just administering the levy. Firms have been promised they will get back more than they put in, but it’s not clear how this will happen if so much is being lost in bureaucracy,’ Walker said.
John Harding, employment tax partner at PwC, expressed surprise that the levy is being introduced as quickly as April 2017, and said more detail was needed.
‘For many large businesses the 0.5% payroll levy will be far higher than the costs of the number of apprenticeships they currently offer. Unless larger businesses can reap the benefits of apprenticeships in other parts of their supply chain, this will simply be a payroll tax for them, ‘ Harding said.
He argued that small businesses will be the main winners from the apprenticeship levy as, in practice, businesses with broadly less than 100 employees will largely be exempt from the cost of the levy.
Stephen Ibbotson, ICAEW director of business, said: ‘We finally have clarity on which businesses will be affected and how. Smaller businesses have been protected and should benefit from further investment in apprenticeships. There will be a charge of 0.5% of the payroll cost but because of the threshold it will only be businesses with a payroll greater than £3m. This will raise £3bn – will all of this be invested in apprenticeships?'
For his part, Chas Roy-Chowdhury, ACCA head of taxation said: ‘The new 0.5% levy is ripe for future tax hikes we need to be cautious around any “mission creep” on the levy. It might be increased in future years and all the funding received from it should be ring-fenced and any surpluses solely used for future apprenticeships.’
In addition, Moira Kelly, chairman of CIOT’s Scottish technical committee, pointed out that the Chancellor’s move would have implications for Scotland under the new devolved arrangements. ‘The burden of payment of apprentices is being shifted from the public purse to individual companies, and as a consequence, the relevant budget in the UK will be reduced and there will be a consequential effect on the Scottish budget,’ Kelly said.
The legislation for the levy will be included in Finance Bill 2016, with more detail expected on 9 December.
Sign up to our newsletter
If you would like to receive regular news alerts about breaking news and developments in tax, accounting and audit, sign up to receive our free newsletter here