Scottish charities to be hit by new employer tax


Ruchir Shah explains how voluntary organisations that employ staff will be affected by the new Apprenticeship Levy 

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11th January 2016 by TFN Guest 1 Comment

In November last year, Chancellor George Osborne announced plans for a new Apprenticeship Levy. This would be a new tax on all organisations that employ paid staff, set at 0.5% of their PAYE bill and will start in April 2017. The idea would be to pool the proceeds from this tax to invest into apprenticeship schemes that all employers could pitch in to develop their staff.

The UK government state that their aim is to shift the responsibility for investing in workers from the state to employers. The chancellor also plans to target this on larger employers. He has therefore arranged for up to a £15,000 rebate so that only large organisations whose PAYE bill is more than £3m will be net contributors through this tax.

Here's the catch. Scottish organisations won’t be able to access the training vouchers this is meant to fund in England and the Scottish Government will (likely) have to put in place an alternative system with the equivalent cash they presumably will get from the total pot.

Ruchir Shah

Ruchir Shah

We have calculated that around 80 of our largest Scottish charities will pay a combined estimate of around £2.3m

The levy will affect all third sector organisations that employ staff, roughly 4,700 charities and voluntary organisations, although we anticipate that the rebate will be automatic. We have calculated that around 80 of our largest Scottish charities will pay a combined estimate of around £2.3m.

It is unclear at this stage how the transfer to Scotland will take place. There are complexities as UK Government won’t know what the total pot will be until they have received the proceeds from this tax! In early discussions with Scottish Government, we understand that the mechanism for this will be worked out next year. Regardless of the total amount available in Scotland however, the money is likely to come through the devolved Scottish Budget, and not ring-fenced. The Scottish system is not guaranteed to match the voucher system the Chancellor plans to put in place in England.

The danger therefore is that this tax gets translated into general spend in Scotland, rather than focused on skilling up the workforce. On the other hand, rather than simply calling for a similar fund, it might make sense to use this opportunity to make sure that Scottish Government re-aligns its apprenticeship programmes, such as the Modern Apprenticeship initiative, to invest more in workers and prospective workers who are the most distant from the labour market, which is after all people that many in our sector seek to support anyway.

Some umbrella bodies in England have expressed concerns that the Levy on charities will mean that charitable funds will be subsidising private sector costs. But it could be argued that  investing the workforce ought to be a shared responsibility for all employers, including large charities, as long as there is access to these funds in Scotland. SCVO will be convening discussions in early 2016 with the Scottish Government to ensure that the Scottish system makes the best use of this investment by employers in Scotland's workforce.

Ruchir Shah is policy manager at the Scottish Council for Voluntary Organisations


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