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Autumn Statement: Apprenticeship tax could catch out SMEs

Major concern raised among business groups that SMEs will be caught out by the apprenticeship levy

THERE is a major concern among business groups that SMEs will be caught out by the apprenticeship levy.

The tax, which is being run at 0.5% on paid bills and affects payrolls of £3m and over, was unveiled by chancellor George Osborne in today’s Autumn Statement.

At this level however, key business representatives fear this will trap many smaller business, which would go against the government’s promise to only include larger businesses.

‘Very concerned’ with the apprenticeship levy

Responding to the chancellor’s apprenticeship levy announcement, Stewart Segal, chief executive of the Association of Employment and Learning Providers (AELP), raised fears that small and medium-sized firms will be caught out by the requirements of the tax.

‘‘(The levy)will also apply to more businesses than we expected because the £3m benchmark means that employers with less than 150 employees could be included in the Levy,” said Segal, who added that there needs to be more clarity given towards the rules around the levy if we are to see an effective implementation by 2017.

Carolyn Fairbairn, director-general of the Confederation of British Industry, also believes that small businesses could be severely affected by the levy.

‘‘The apprenticeship levy, set at 0.5%, is a significant extra payroll tax on business and by widening the net it will now catch more smaller firms,” explained Fairbairn, who ‘‘welcomes the creation of a levy board to give business a voice on how the money is spent and will work with the Government to ensure a focus on quality.”

Another director-general, Simon Walker of the IoD, has reservations as to how the apprenticeship levy will be implemented.

‘‘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,” said Walker.

‘Committed to supporting apprenticeships’

With a widening skills gap and a constant battle to tackle unemployment figures, the Conservatives have been putting plans in motion to revolutionise the sector. In August, David Cameron confirmed plans to create three million new apprenticeships within the next five years.

‘‘The greatest asset any employer has is their workforce,” explained the prime minister. ‘‘And by investing in them, they are investing in the success and future of their business.”

‘‘As a one nation government, we are committed to supporting 3 million quality apprenticeships over the next 5 years – to help strengthen our economy, deliver the skills that employers need and give millions more hardworking people financial security and a brighter future.”

What did the Autumn Statement reveal?

In the Spending Review and Autumn Statement, Osborne confirmed that the treasury will be collecting close to £12bn from large employers between 2017-2021, which works out at around £3bn a year. The rate of tax has been set at 0.5 per cent of an employers payroll, with large firms solely footing the bill.

There have been fears that the Conservatives will sacrifice quality in favour of quantity when implementing the apprenticeship initiative, but Osborne assured MPs that this will not be the case.

‘‘To make sure they are high quality apprenticeships, we’ll increase the funding per place – and my Right Honourable Friend the Business Secretary will create a new business-led body to set standards,” said Osborne.

‘‘As a result, we will be spending twice as much on apprenticeships by 2020 compared to when we came to office.”

‘‘Britain’s apprenticeship levy will raise £3bn a year. It will fund three million apprenticeships. With those paying it able to get out more than they put in,” added the chancellor, who admitted to it being a ‘‘huge reform to raise the skills of the nation and address one of the enduring weaknesses of the British economy.”

How has the apprenticeship announcement been received?

There are many who have expressed their disappointment with the apprenticeship levy, including Neal Todd, partner at city law firm Berwin Leighton Paisner.

‘‘It is disappointing to see the government introducing an additional levy on employment when it should be continuing to encourage businesses to come to this country and to employ people in the UK,” said Todd.

‘‘Relatively small additional taxes are not necessarily a problem. However, it indicates the wrong direction of travel for taxes.”

‘‘Coupled with the continued rhetoric on avoidance, multinationals may well question whether the UK will remain a tax friendly environment in the years to come,” concluded Todd.

Levy will encourage more firms to hire apprentices

Carl Lygo, vice chancellor of BPP University, one of the first higher education centres to introduce ‘Degree Apprenticeships’, believes that the levy will influence the way businesses will hire staff in the future.

‘‘We welcome this levy as it has great potential to increase not only the number of apprenticeships, but particularly those higher quality schemes at or above level three,” explained Lygo.

‘‘The government is serious about improving the quality of apprenticeships, so that they become a viable alternative to the traditional route through university, greater employer ownership of degree programmes is essential.”

‘‘By encouraging companies to think more laterally about how they could incorporate apprenticeships, possibly alongside their existing graduate programmes, then this levy could be exactly what is needed,” concluded Lygo.

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