Apprentice Levy slammed for dramatically increasing business costs

The government’s Apprenticeship Levy, which is set to raise around £3bn a year for the Treasury, has been branded nothing short of a new payroll tax.

Employers pay a levy of 0.5% of their payroll with an allowance on first £15,000. Employers with payrolls of less than £3m will not pay the levy and assuming an average salary of £25,000, employers with over 120 staff will be liable for the levy.

Insititute of Directors (IoD) head of employment and skills policy Seamus Nevin said: “The chancellor cannot pretend the apprenticeship levy is anything but a payroll tax – and a considerable one which will raise £12bn over the parliament.

“At 0.5% of payroll, it will be a big hit to big employers. With the Office for Budget Responsibility (OBR) also saying that employers could pass the cost of the levy onto employees, the government must also be careful of the impact the levy, combined with the incoming national living wage, could have on wage growth and job creation.

“Moreover, businesses still need clarity about how they will get more out of the levy than they put in. It is a worry that the government are working on the assumption that up to one-quarter of the money collected will be spent on administration and bureaucracy, rather than the apprentices themselves.”

He said that while employers are committed to tackling the skills shortage and apprenticeships would help in that aim, the focus needs to be on quality training, not just the race to reach the targeted three million apprenticeship starts.

Sugar coating

EY head of tax policy Chris Sanger said the new apprenticeship levy “follows the habit of chancellors to use pleasant words to sugar coat the introduction of new taxes, as we have seen, for example, with the naming of the UK’s energy tax as the Climate Change Levy”.

He said: “This new tax, which alone constitutes over half of the tax rises announced in the Autumn Statement, requires employers to pay an additional 0.5% on their employment costs. To some this might seem very similar to a rise in employer’s National Insurance Contributions.

“However, this would breach the government’s ‘triple tax lock’ commitment and has bad connotations as increasing a ‘jobs tax’. Furthermore, this follows on from the introduction in the Summer Budget of the Dividend Tax, which was set up as a new tax rather than merely an increase in the income tax rates on dividends.

“To those paying either tax, this word-smithing is irrelevant. They will still find themselves paying more tax on income they thought was protected under the Manifesto commitment.

The Apprenticeship Levy: Preparing for the known unknowns

Extra burden

The CBI claimed the levy would create a sizeable extra tax burden for business and would be sure to affect many smaller companies. But the government is insistent that the thresholds would exempt 98% of employers.

Confederation of British Industry (CBI) director-general Carolyn Fairbairn said: “With the levy set at 0.5%, even those businesses most committed to training and development won’t be able to recoup their outlay, and it looks like an additional payroll tax.”

PwC employment tax partner John Harding said he welcomed the government’s commitment to investing in apprenticeships, but was somewhat taken aback that the scheme would go live as soon as April 2017.

“Despite the benefits, the cost impact for large businesses can’t be ignored. 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. When taken together with the National Living Wage and increase in auto enrolment costs, these businesses face a significant increase in their employment costs over the next few years.”

Apprenticeships have ‘deep-lying problems’ and need ‘radical reform’ to succeed

Owain Thomas

Share