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How Apprenticeship Levy will affect Recruitment Companies?



how apprenticeship levy will affect recruitment companies

How Apprenticeship Levy will affect Recruitment Companies?

Set to come into effect from 6th April 2017, the Apprenticeship Levy will require all employers from both public and private sectors operating in UK and with an annual pay bill over £3 million, to fund apprenticeships at a rate of 0.5% of their total annual pay bill. The Government aims to fund three million new apprenticeships in England by 2020.

However, the Apprenticeship Levy which is basically a payroll tax, may pose a significant challenge to recruitment agencies as payrolls run by them tend to be much higher than those run by other companies.  This is especially true for the ones which are employing temporary workers.

The levy will be collected by HMRC through Pay As You Earn (PAYE) on monthly basis. According to the Government, employers with an annual pay bill of £3million and over will only affect 2% of businesses but given the nature of the recruitment industry, the actual percentage of businesses affected might go much higher than that.

How the Apprenticeship Levy will work?

Example 1:

Annual pay bill of £3,000,000
Apprenticeship levy of 0.5% x £3,000,000 = £15,000
Minus £15,000 levy allowance = £0 annual levy payment

Note: It only applies to UK companies and each employer will receive a fixed “levy allowance” of £15,000 to offset against their levy payment.

Example 2:

Annual pay bill of £8,000,000
Apprenticeship levy of 0.5% x £8,000,000 = £40,000
Minus £15,000 levy allowance = £25,000 annual levy payment

All eligible employers will be able to draw down from the levy fund and pay for apprenticeship training and assessment through the digital apprenticeship service.

As the money will go in the digital account, the Government will apply a 10 per cent top up on funds, meaning that for every £1 paid in, the employer gets £1.10 to spend. Businesses will have 24 months to spend their funds on apprenticeship training before they expire.

What is in store for recruitment agencies?

This definitely constitutes a hefty tax which could be payable even by SME recruiters. But looking at the other side of the coin, many businesses have not seen the opportunity in training their temporary workers. While many of them see a direct value in training temporary workers, only a small proportion of them do so. The UK recruitment industry is witnessing a tremendous growth in temporary workers on a year-on-year basis and the apprenticeship levy can positively help these firms to gain competitive advantage by developing and retaining higher skilled apprentices.

It is of huge concern that the IR35 reforms affecting public sector PSCs will potentially dramatically increase the value of an agencies payroll and thus increase the amount they will need to pay in the Apprenticeship Levy. If the Apprenticeship Levy and IR35 reforms have been pressing concerns for you, please connect with Kunal Shah on 0758 4651087 or at kunal.shah@qxltd.com to get an expert opinion and know about the possible solutions.



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