Business Finance: It’s time plan for the Chancellor’s new payroll levy, warnsPeter Harrup

Peter Harrup of BDO

Peter Harrup of BDO - Credit: Archant

In the summer Budget it was announced that the Government will introduce a new levy on large employers to help it meet a national target of creating 3million apprenticeships.

The concept of the levy is that the amount each employer pays will create vouchers in an online system (through Pay As You Earn) to purchase training – the more you pay, the more vouchers you will receive and the more you can spend on training for your apprentices.

From an initial consultation, it is clear that the system will also affect smaller employers as the Government wants the online voucher system to be used to organise apprenticeship training for employers of all sizes. It appears that employers that are not large enough to pay the levy will still get some financial support to pay for apprenticeship training. This may be paid for through transfers of unused vouchers from larger employers, or by allocating a percentage of the total levy charged to a voucher pool for smaller employers.

The levy will now be introduced in the Finance Bill 2016 and commence in April 2017. It will be set at a rate of 0.5% of an employer’s total wage bill. All employers will be included in the scheme; however, each employer will receive an allowance of up to £15,000 to offset against their levy payment. This means that an employer will only start to pay the levy where their total annual payroll bill exceeds £3m and the Government expects that more than 98% of employers will be exempt from this charge.

It should be remembered that, from April 2016, a new National Insurance Contributions (NIC) exemption for employing apprentices aged under 25 will apply, so that no employer’s NIC is charged on their earnings up to the NIC upper earnings limit (£43,000 for 2016-17). Therefore, reviewing your recruitment policy now and taking on young apprentices could help you save on payroll taxes, offset at least part of the apprenticeship levy costs and ensure you can use some of your levy credit against apprentice training costs in future.


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Many practical details of how the levy will work still have yet to be finalised. For example, the Government has yet to decide if there should be an upper limit on how much training can be purchased for a single apprentice. Employers who already offer apprenticeships may not see a significant change in their overall costs in the long run; those that do not may want to review their recruitment procedures to ensure that they are not disadvantaged by the new levy.

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