What is the Apprenticeship Levy?
The apprenticeship levy will apply to employers of a certain size from April 2017. This new system supports the English apprenticeship system. Scotland, Wales and Northern Ireland have their own arrangements for supporting employers to access apprenticeships, through their devolved powers.
It will form part of a broader programme of apprenticeship reforms that Government is introducing. The Government believe that apprenticeships are good for business and a great way of developing the skills of the workforce both now and in the future. The aim of the apprenticeship programme is to deliver more at a better quality to help improve economic productivity.
The levy will apply to employers who have a pay bill of more than £3 million per year. The levy will be set at 0.5% of their pay bill. To calculate how much each employer will have to spend, the Government will use HM Revenue and Customs (HMRC) data about the home address of a company’s employees to calculate the proportion of each employer’s pay bill -as paid to employees who live in England.
Put simply the process will be:
If the employer has some unused allowance leftover in a month and has previously paid the levy that tax year, they will receive a credit to offset against other PAYE transactions and this credit will reduce the amount of levy paid.
The levy will be paid to HM Revenue and Customers (HMRC) through the Pay as You Earn (PAYE) process, alongside the employers’ tax and National Insurance Contributions (NICs). Levy paying employers will need to declare their payments and include it in their usual PAYE to HMRC by the 19th (or the 22nd electronically) of each month. Therefore the levy-paying employers will see their first funds in their digital account after 22nd May. To simplify the employer experience, the Government propose the new approach comes into effect from 1st May 2017 – any apprenticeships commenced from this date will be funded according to the new rules. The new system will pay training providers one month in arrears for training they report has been delivered.
The apprenticeship levy funds cannot be used by the employer to pay for wages, statutory licenses, etc. and can only be used towards the cost of apprenticeship training and end point assessment.
How does an employer access their levy funds
A new digital apprenticeship service account will be created for employers who pay the levy. Once they have paid their calculated levy through PAYE they will be able to access their funds through this new digital account.
The digital account can be used to pay for training and assessment of apprentices in England, separate arrangements are set to be put in place for Scotland, Wales and Northern Ireland. This service will also help employers find training providers to work with to develop their apprenticeship programme.
Employers will be able to register to create their digital account from January 2017 and will be able to use the account from April2017 to pay for the training and assessment of their apprentices. Once the employer has registered for their digital account, they’ll need to sync it to their PAYE schemes.
Employers will see their funds appear monthly in their digital account, a few working days after they have confirmed their pay bill and HMRC contribution for the previous month. The first time an employer will see any funds in their digital account will be 1st May 2017. The amount in the digital account will be how much the employer has to spend in England on apprenticeship training.
As apprenticeships are a devolved policy, the authorities in each of the UK nations will manage their own programmes, including how funding is spent. The digital account will support the English apprenticeship system, Scotland, Wales and Northern Ireland will make their own arrangements for how employers access their apprenticeship funding.
A 10% top up to the funds that an employer has to spend on apprenticeship training in England will apply. Therefore for every £1 deposited in the account, the employer will actually have £1.10 to spend. Funds will expire in the digital account after 18 months. If they’re not used these funds can only be spent on apprenticeship training. This also applies to top-ups. Money is classed as spent once it has left the digital account as a payment to a training provider. (Whenever a payment is made from the account it will automatically use the funds that were deposited in there first to minimise expired funds. The digital account will let employers know in good time when their funds are due to expire).
When an employer buys training through their digital account they don’t need to have enough funds in there to cover the entire cost of the training. Payments will be taken monthly, so employers onlyneed to have enough funds to cover the monthly cost of each chosen apprenticeship. However, it is proposed that 20% of the total cost of the apprenticeship is held back and taken from the digital account at the end of the apprenticeship (this is to reflect that employers will increasingly move to training apprentices on apprenticeship standards where these is an end-point assessment).
Employers will see funds entering their digital account regularly as they pay the levy, and they’ll see funds leaving the account as payment to their training provider. In the future it is anticipated more flexibility will be introduced as to how the digital payments leave the employer’s account.
Levy paying employers who don’t have enough funds in their digital account to cover all the apprenticeship training they wish to buy will set a price with their chosen training provider and the Government will provide some additional support to help meet additional costs. Support is available up to the maximum amount of funding available for that apprenticeship
The digital apprenticeship service explained
In addition to the digital account that forms part of the digital apprenticeship service, employers will also be able to access the following through this service. (This also applies to none levy paying employers):
- Select an apprenticeship framework or standard
- Choose a training provider(s) to deliver their training
- Choose an assessment organisation
- Post apprenticeship vacancies
By 2020 it is anticipated that all employers will be able to use the digital apprenticeship service to pay for training and assessment.
Employers who don't pay the levy
Once these employers have identified the training they want for their apprentice, they will need to negotiate a price with their chosen provider (as per the funding bands detailed below).
It’s proposed the Government will pay 90% of the agreed price with the none-levy paying employers, with the employer paying the remaining 10%. The upper limit of the funding band for each said apprenticeship will cap the maximum price that the Government will co-invest. Employers will be able to agree a payment schedule with their training provider and spread their payments over the lifetime of their apprenticeship. If employers want to spend more than the upper limit for that said funding band, they can do so using their ‘own money’.
Employers who don’t pay the levy will not need to use the digital account element of the digital apprenticeship service until at least 2018 to pay for their apprenticeship training and assessment. Government guidance and support will be issued to these employers prior to this happening.
From April 2017, the Government will ask non-levy paying employers to make a contribution towards the cost of their apprenticeship training. The employer will be asked to pay this directly to the provider and this payment will be able to be spread across the lifetime of the scheduled apprenticeship delivery. Further detail on how non-levy paying employers will be effected is expected later this year.
Co-investment for small employers
Employers with less than 50 employees will have the co-investment requirement waivered. Proposals suggest the Government will pay 100% of apprenticeship training costs for 16-18 year olds, as well as for 19-24 year olds who are a care leaver or has a Local Authority Education, Health and Care plan. In the first year of the new funding system, employers will need to pay their co-investment directly to training providers. Over time, the Government intend to move to a system where the employer can pay this through their digital account.
Additional support for young apprenticeships
The Government is keen for apprentices to have a minimum standard of Level 2 in English and maths and so they will pay providers £471 for each pf these qualifications (as currently done). This will not be deducted from the employer’s digital account. The Government will also pay up to £150 a month to training providers for any apprentices who require additional learning support (e.g. because of conditions such as dyslexia, learning difficulties or disabilities).
How much will a specific apprenticeship cost an employer?
It is proposed that the new apprenticeship funding system, will consist of 15 funding bands (see more information below), with the upper limit of these bands ranging from £1,500-£27,000. All existing apprenticeship frameworks will be placed within these funding bands along with any new frameworks. The upper limit of each band will cap the maximum amount an employer can spend on an individual apprentice. This limit will also cap the amount the Government co-invests. Any investment required beyond this cap will need to be paid for from the employers ‘own money’.
Will there be additional support to employers who take on young apprentices (16-18 year olds)?
There will also be extra cost support to employers for apprentices aged 16-18 years old or for 19-24-year-old care leavers or those who have an Education, Health and Care plan. The proposed cost for this is an additional £1,000 per apprentice for employers and a separate £1,000 for the training provider. Both payments will be made in two equal instalments at three months and 12 months. Initially the employer’s payment will be made to them via their training provider, who will pass the money on. Over time, it’s intended to move to a system where the employer receives the payment directly from the Government. It is also proposed from 2018, levy-paying employers will be able to transfer up to 10% of the annual value in their digital account to other employers on the digital system.
Will the new system be simpler?
Currently the Government funds apprenticeship frameworks at different rates depending on the age of the learner. Proposals are that each individual framework will be allocated to a single funding band (regardless of age / location). This brings frameworks in line with the funding system for apprenticeship standards and simplifies things for the employer.
Will there be additional funding for apprentice support in English, maths and any other areas required?
The Government is keen for apprentices to have a minimum standard of Level 2 in English and maths and so they will pay providers £471 for each of these qualifications (as currently done). This will not be deducted from the employer’s digital account. The Government will also pay up to £150 a month to training providers for any apprentices who require additional learning support (e.g. because of conditions such as dyslexia, learning difficulties or disabilities).
Currently there are two types of apprenticeship schemes: framework and standards and they are funded in different ways.
New system will have 15 funding bands with upper limits ranging from £1,500 – £27,000.
The upper limit will cap the maximum amount of digital funds a levy-paying employer will pay towards an individual apprenticeship. The upper limit will also cap the maximum price the Government will co-invest where an employer does not pay the levy / has insufficient digital funds.
If employers want to spend more than the upper limit of funding band with their training provider this will have to be paid out of the employer’s ‘own money’.
The new system will move away from the current one that prices frameworks at three different levels depending on the age of the learner and will move towards a single funded band for individual framework pathways.
Current frameworks will be placed into the funding band deemed most suitable based on the current rate the Government pays providers. All STEM framework pathways will see an increase in the current government funded adult rate by 40% at Level 2 and 80% at Level 3 and above.
Over the course of parliament, the Government will phase out current apprenticeship frameworks to be replaced by the apprenticeship standards approach. Standards are deemed higher quality and more rigorous. Currently this is paid for 2/3 Government and 1/3 employer. It is proposed these standards will now be allocated to a new funding band that most closely aligns cost wise (e.g. all standards in current band 2 – max of £4,500, will be allocated to proposed new band 7 which has an upper limit of £5,000).
The digital apprenticeship service will support the English apprenticeship system. Scotland, Wales and Northern Ireland will have their own arrangements for supporting employers to access apprenticeships. The level of funding available in each levy paying employer’s account will depend on the proportion of their pay bill to their workforce living in England. The Government proposes to review the current apprenticeship funding rules on individuals who are funded to take an apprenticeship through the English system, even if they don’t live in the country. It’s proposed these rules will change to a simple test; whether the apprentice’s main place of employment is England.
Further information about apprenticeship funding
Further details of the following confirmed apprenticeship funding arrangements can be found at https://www.gov.uk/government/publications/apprenticeship-levy
- On the final funding bands that will apply in the new system.
- Final, full set of technical rules that underpin the funding system.
- Confirmation of how the proportion of the pay bill that is paid to employees living in England will be calculated.
- Further employer guidance from HMRC will be published on how to calculate and pay the apprenticeship levy.
How GPSTL can help you
As both a large employer and a training provider, we are ideally placed to discuss the way things are changing.
We have extensive knowledge in this area and can discuss the tangible positive return on investment that it provides for small to large businesses.
If you are like us, experts in managing change positively and would like to discuss anything related to apprenticeships or traineeships, please contact us.