07 March 2017

What is the apprenticeship levy?

From April 2017 funding of new apprenticeships will come from a apprenticeship levy on employers rather than taxpayers.

Funds raised against the payroll of 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.

The levy is set a rate of 0.5% of an employer's wage bill and is collected monthly via the Pay As You Earn (PAYE) mechanism. The levy applies to companies of all sizes with a £3m+ annual pay bill.

Employers that start an apprentice before April 2017 will receive funding under the current system for the duration of the apprenticeship.

Why is the levy being introduced?

The government made a commitment to increase the number of quality apprenticeships by way of a levy on employers as part of its Emergency Budget proposals in 2015.

Announcing the plans the government cited the fact that the amount that UK businesses have invested in training has fallen consistently over the last 20 years and as a result productivity now lags behind other major Organisation for Economic Co-operation and Development (OECD) countries. Similar levy systems already operate in more than 50 countries, including South Korea, the Netherlands and Denmark.

Following a government consultation, a policy paper explaining how apprenticeship funding for employers will work from May 2017 was published, and it is these changes that are about to come into effect as we start the new financial year.

What is the likely impact on construction?

Based on current data, about 1% of employers registered with the CITB (750 companies at group level) will need to pay it.

The CITB (a non-departmental public body that reports to the Department for Business, Innovation and Skills) already has a responsibility to collect a levy from construction employers in support of training and skills.  The CITB is currently exploring options for how the existing CITB Levy could work alongside the new apprenticeship levy with a view to developing a new CITB Levy Order in 2018.

For one year only (2017/18) companies with a £3m+ payroll, who are in scope to the CITB levy, will need to pay both levies but a transition package for those affected has been developed. Affected firms will be able to claim CITB funding at an enhanced rate. This funding will be capped at the company's level of apprenticeship levy contribution.

From April 2017 funding of new apprenticeships will come from a apprenticeship levy on employers rather than taxpayers.

How is the apprenticeship levy payment calculated?

All employers receive an offset of £15,000 (0.5% of a £3m annual pay bill). If an employer's monthly pay bill is under £250,000 (equivalent to a £3m annual pay bill) then the levy will not apply.

The £15,000 offset equates to a monthly allowance of £1,250. If 0.5% of the monthly pay bill is higher than the allowance then the levy is payable. If 0.5% of the monthly pay bill is lower than the allowance then the unused allowance balance is carried forward to the following month. This means that some companies may only be liable in months where payroll is higher than usual.

What will employers gain from the apprenticeship levy?

Employers in England (though not Scotland, Wales and Northern Ireland) will be able to reclaim their apprenticeship levy contributions (plus a 10% government top-up) as digital vouchers to pay for training apprentices.

Vouchers can be used to pay for apprenticeship training and assessment (from an approved provider) but not for wages, travel or subsidiary costs, management costs, work placements, traineeships, or the costs of setting up an apprenticeship programme.

Vouchers can be used to progress employees into a higher level apprenticeship, or an equal or lower level apprenticeship where this teaches a new set of skills.

Digital vouchers will expire after 24 months and can be pooled across connected companies.

How much will training cost an employer?

Employers can choose from a range of training providers and can negotiate the cost of training. Government funding caps on each apprenticeship will provide an upper limit to which government funding can be used to pay for an apprentice's training. Proposed bands are detailed in Appendix 1 of the CITB's apprenticeship levy factsheet.

Employers who do not pay the apprenticeship levy will not be expected to use digital vouchers until at least 2018. For now training providers will still be paid directly by the government. Employers will be expected to choose a provider from a registered list, negotiate costs and adhere to relevant funding caps.

Under 'co-investment' employers who are not liable to pay the apprenticeship levy must contribute 10% of funding towards the cost of apprenticeship training. Government funds will make up any shortfall up to the funding cap limit for any given apprenticeship. Small employers (less than 50 employees) will have their costs fully covered by government.

What about 16 to 18-year-old apprentices?

Government has pledged a 20% increase in funding for 16-to-18-year-olds under the Apprenticeship Frameworks scheme (funding levels for Apprenticeship Standards will be set through the Trailblazer process). This additional money will be routed directly to training providers who will receive an additional £1,000 incentive. The government is also proposing a £1,000 payment to employers who take on a 16 to 18-year-old apprentice at the three and 12 month marks.

Additional support is also available for employers taking on a 19-24-year-old apprentice who has been in care or has a local authority education or health care plan and to support those with learning disabilities or those who don't have minimum standard Maths and English. There are also uplift payments available to support apprenticeships in the most deprived areas.