Everything you need to know about the new Apprenticeship Levy...

In the 2015 summer budget the Government announced plans for a new UK-wide apprenticeship levy to commence in April 2017. The levy funds can only be used to fund apprenticeship delivery but will ensure their sustainability in the years ahead while also supporting the Government's target of creating three million apprenticeships in England by 2020.

The Levy is currently set at 0.5% of PAYE and all employers have an allowance of £15,000 so it currently only impacts on employers with a payroll over £3,000,000.

Here, Warwickshire County Council Apprenticeship Hub Manager Torin Spence explains in detail how the new Levy will affect businesses.

Apprenticeship Funding and the Levy

From May 2017 the way apprenticeships are funded in England will change with the introduction of the Apprenticeship Levy. The Levy is being introduced by Government to replace all taxpayer funding of apprenticeships for companies of all sizes.

It starts from April 2017 at a rate of 0.5% of an employer’s wage bill, and will be paid through Pay As You Earn (PAYE). 

Who will pay the Levy?

All employers are liable to the Levy, however an allowance of £15,000 is in place so only employers with an annual paybill in excess of £3 million will be impacted on launch.

Where companies are connected, only one £15,000 allowance can be shared between them. The division of the allowance must be decided at the beginning of the tax year so, if during the year an employer becomes connected to a company which already pays the levy, the first employer would immediately become liable to pay on their full payroll.

How will the apprenticeship levy be collected?

The Levy will be collected monthly through the PAYE system, alongside Income Tax and National Insurance Contributions. Single employers with multiple PAYE schemes will only have one allowance.

Levy raised against the payroll of their employees who live in England will be available to fund apprenticeships. Funds raised against employees who live in Scotland, Wales or Northern Ireland will go into general taxation. 

What will employers get back from the levy?

Employers impacted by the Levy in England will be able to reclaim their contributions, with a 10% uplift, as digital vouchers to pay for training apprentices through the Digital Apprenticeship Service portal (DAS). This voucher system will not apply in Scotland, Wales and Northern Ireland.

Connected companies can pool their funds into a single levy to pay for apprenticeship training. But employers not connected to the group, such as companies in the supply chain, are not able to join the pool - but this might change in future years.

What can levy funds pay for?

Funds in the digital account can pay for apprenticeship training and assessment (with an approved provider and assessment organisation) up to its funding band maximum.

These funds CANNOT pay for wages, travel or subsidiary costs, managerial costs, work placements, traineeships, or the costs of setting up an apprenticeship programme.

Employers can use DAS funds to recruit new Apprentices or use Apprenticeships as a progression tool within the organisation where it gives employees progression and/or new skills.

From May 2017, if an employee wants to learn new skills, which are different from their existing qualifications, at a higher, equal or lower level, an employer can use their digital account funds to pay for this. 

Will funds in the DAS expire?

The Government has announced that unspent funds in an employer’s digital account will expire after 24 months. So for example funds entering the account in May 2017 will expire in April 2019, unless the employer uses them.

The digital account works on a ‘first-in, first out’ basis,  so payments automatically draw from the funds which entered the account first.

How much does an Apprenticeship cost?

All employers must choose a training provider and negotiate the cost of the training.

Every individual apprenticeship framework and standard has been allocated a funding band.

The new funding bands range from £1,500 to £27,000 and replace the existing framework rates and are irrespective of age – although there are allowance available for recruiting 16-18 year olds or young people. 

Government funding, either through the DAS or co-investment for non-levy payers (detailed below), cannot be used to pay for apprenticeship costs above the funding cap.

Is there any additional support?

Yes, there is an additional £1,000 available for employers if they take a 16-to-18 year old onto an apprenticeship or a 19-to-24 year old who has previously been in care or who has a Local Authority Education, Health and Care plan to help meet any extra costs associated with this.

This will be paid to employers in two equal instalments at three months and 12 months. Initially, these payments will be made to employers via their training provider, who will pass the money on. These payments will come direct from the government and will not be deducted from an employer’s digital account.

Employers who don’t pay the levy

If you do not pay the levy, you won’t need to use the digital apprenticeship service to pay for apprenticeship training and assessment until at least 2018.

From May 2017 you can choose the training you’d like your apprentices to receive, an approved training provider and an assessment organisation using the registers available on the digital apprenticeship service. Help with this is available from the National Apprenticeship Service and from the Warwickshire Apprenticeship Hub.

Government asks for a 10% contribution to the cost of this training and they will pay the rest (90%), up to the maximum amount of government funding available for that apprenticeship. This is paid directly to the provider and you will be able to spread it over the life time of the apprenticeship. Government is calling this a ‘co-investment’ model.

Employers with fewer than 50 people working for them will also be able to train Apprentices aged 16 to 18 or aged 19 to 24 and have previously been in care or who have a Local Authority Education, Health and Care plan at no cost. These employers will not be required to contribute the 10% co-investment; instead the government will pay 100% of the training costs for these individuals.