Apprenticeships: The Apprenticeship Levy – what is it?

The Apprenticeship Levy – what is it

The Apprenticeship Levy, the subject of this blog, was first announced in the government’s 2015 Summer Budget. The levy is to apply to employers across the UK and is intended to come into force in April 2017.

Apprenticeships can bring many benefits to employers (see our blogs on: Five keys benefits of apprenticeships for employers and You’ve taken on an apprentice – what next?) but this new levy marks a change to how they are funded – and not only for those employers who will have to pay the levy.

Who will contribute to the Apprenticeship Levy?

UK employers with a pay bill over £3m a year, calculated on all earnings, including wages, bonuses, commissions and pensions that National Insurance Contributions (NICs) are paid on, are expected to pay a levy of 0.5%

The levy will be allowable for Corporation Tax and groups of connected employers will be required to decide what proportion of the levy allowance each employer in the group will be entitled to.

A ‘levy allowance’ of £15,000 per year has also been created. Meaning that the total amount you need to spend is 0.5% of your pay bill, minus £15,000.

For example: An employer with a payroll of £4,000,000 would have £1,000,000 of their payroll subject to the Levy.  This equates to £1,000,000 x 0.005 = £5,000.

How is the Apprenticeship Levy paid?

Through the PAYE system – just like tax and NIC.

How will this affect employers?

Changes to the way apprenticeship training is funded will be rolled out across the UK from May 2017, whether or not your company is paying the levy. Companies that are not required to pay the levy (if your pay bill is under £3m a year) will share the cost of the Apprenticeship with the government in what is being called a “co-investment”.

Category 1: Employers with a payroll of more than £3,000,000

You will be contributing to the Apprenticeship Levy via HMRC and you will have two years to use the funds collected. After this time the funds return to a central pot for other employers to access.

CMS can help you maximise the use of your Apprenticeship Levy pot, lead and manage the entire process as fully as you wish and sign post you to make the most of your pot.

Once your funds are depleted you will automatically fall into the next category.

Category 2: Employers with a payroll of less than £3,000,000 but more than 50 employees

These employers will be expected to make a mandatory contribution of 10% to the cost of an apprenticeship. With the government paying the remaining 90%.

CMS relevant funding bands are currently between £3,000 and £9,000. Meaning a contribution between £300 and £900 depending on the Apprenticeship would be collected from the employer.

CMS offer a Direct Debit solution for the collection of payments from employers. It is expected that payments will be collected quarterly to reduce administrative burden on both sides.

Category 3: Employers with a payroll of less than £3,000,000 and no more than 50 employees

16-18 year old Apprenticeships will continue to be 100% funded by the government for these employers.

19+ Apprentices will require a 10% contribution from the employer.  This will equate to between £300 and £900 per apprentice.

Apprenticeships to Replace Learning and Development Budgets

From May 2017 Apprenticeship levy-paying organisations will be contributing 90% towards the cost of their apprenticeship training.

Many levy-paying organisations are choosing to replace existing learning and development budgets with the apprenticeship levy.

This allocation can be used to upskill existing and new employees at every level of the organisation including entry level administrators and senior managers.

Opportunities for Smaller Organisations

Non-levy paying organisations can access the same benefits requiring only a 0-10% contribution from the employer.

A new apprenticeship landscape from 2017 will allow employees and employers to develop the necessary skills

Changes in Eligibility from May 2017

Historically those individuals holding degree level education or above were not eligible to benefit from Government funded Apprenticeships.

From the 1st May 2017 employees holding Degree level education or above will be able to fund their training and development via an Apprenticeship.

Training must:

Develop substantial new skills

Example 1:

Those working as line managers or senior managers who hold higher level qualifications in an area unrelated to Management.
Proposed Apprenticeship: Level 3 or Level 5 Apprenticeship in Management

Example 2:

Those working in the health and fitness sector as fitness professionals with degrees or above.
Proposed Apprenticeship: Level 3 Apprenticeship in Personal Training

Employer Incentives

16-18 Year Old Employer Incentive

Employers will be incentivised to employ a 16-18 year old Apprentice through being offered £1,000 for doing so.  The incentive is available to all employers regardless of size and payroll and payable through the training provider to the employer in two stages after 3 Months on programme and at the completion of programme.

How do companies access apprenticeship funding?

From January 2017, it is expected that companies will be able to create a digital apprenticeship service account, which can be used to pay for training and assessment for apprentices. These must be spent within a fixed time frame.

It will also give access to information about training providers to support the delivery of apprenticeship programmes.

Different systems will be accessed depending on whether the business is based in England, Scotland, Wales or Northern Ireland, through the relevant apprenticeship authority.

Smaller employers using the co-investment method should not expect to use this new system until 2018. From April 2017, they can select a training provider and an assessment organisation (see our blog on: Are all apprenticeship providers the same?) and payment is organised through the training provider (CMS Vocational Training Ltd).

Apprenticeship Funding Calculator

The government has published an Apprenticeship funding calculator to help estimate the cost of apprenticeships to your organisation.  This can be accessed here.

Find out more

More detail on the Apprenticeship Levy is available on the government website: https://www.gov.uk/government/publications/apprenticeship-levy-how-it-will-work/apprenticeship-levy-how-it-will-work.

You can also email any questions to nationalhelpdesk@apprenticeships.gov.uk or call free on 08000 150 600.

Further guidance will be published by the government later this month (June) and in October and December 2016, before the Apprenticeship Levy comes into force.