1. What is the apprenticeship levy?
The way apprenticeships in England are funded is changing. The apprenticeship levy is a new tax on businesses that will be introduced from April 2017 to help support the government’s target of 3 million apprenticeship starts by 2020.
2. Why is it being introduced?
The apprenticeship levy will help to deliver the government’s commitment of 3 million apprenticeship starts by 2020 and is designed to make apprenticeship funding sustainable. For the first time, employers will be in control of apprenticeship funding – empowered to get what they need from the training market.
3. Who will have to pay the levy?
Employers with an annual payroll over £3 million and operating in the UK (including private, public sector and voluntary sector organisations) will have to pay the levy.
4. How much will employers pay?
0.5% of an employer’s total payroll, with a £15,000 allowance to offset the overall cost.Pay bill will be based on total employee earnings subject to Class 1 secondary National Insurance Contributions (NICs). A connected person rule, similar to the one used for the Employment Allowance, will mean that employers who operated multiple payrolls will only be able to claim one allowance for the levy. Employers in this category will need to decide how to divide up their allowance at the start of the financial year.
5. How can you get more back than you pay in?
The government will apply a 10% top-up to monthly funds entering levy paying employers’ online apprenticeship service accounts for apprenticeship training in England from May 2017. All funds entering a levy payer’s account will be increased, so every £1 will be increased to £1.10 in value. The amount an employer will receive each month is:-
Monthly levy paid to HMRC
The fraction of the employer’s pay bill paid to their workforce resident in England
A 10% top-up on that amount
Registration for the apprenticeship service is now open to all levy-paying employers.
6. How will it work?
The levy will be paid to HM Revenue and Customs through the Pay As You Earn (PAYE) scheme and will apply to employers across the UK. Access to levy funds will be through a new online apprenticeship service. Levy funds collected one month will appear on the online system the following month and can be exchanged for vouchers to spend on training with an approved training provider.
Employer of 250 employees, each wtih a gross salary of £20k
PAYROLL: 250 X £20,000 = £5,000,000
LEVY: 0.5% X £5,000,000 = £25,000
ALLOWANCE: £25,000 – £15,000 = £10,000 annual levy payment
Employer of 100 employees, each with a gross salary of £20k
PAYROLL: 100 X £20,000 = £2,000,000
LEVY: 0.5% X £2,000,000 = £10,000
ALLOWANCE: £10,000 – £15,000 = £0 annual levy payment
8. What happens to the money once it’s paid?
The money will be collected by HMRC.
Individual employers’ funding for apprenticeship training in England will then be made available to them via their new apprenticeship service account.
Employers will be able to use this to pay for training for apprentices and will have 24 months to spend it from the moment it hits their account.
The service will also support employers to identify a training provider, choose an apprenticeship training course and find a candidate.
9. What can the levy be spent on?
Employers can spend their levy funds on the costs of an apprentice’s training, assessment and certification. This includes either existing staff or new recruits, as long as the training meets an approved standard or framework and the individual meets the apprentice eligibility criteria. Employers will also be able to fund qualifications through the levy as long as they are included within approved apprenticeship standards and frameworks, although qualifications are not mandatory.
Employers will not be able to use levy funds to cover all the costs associated with taking on an apprentice. For example, overheads, supervision costs and apprentices’ wages will not be funded by the levy.
Employers will be able to fund apprenticeships at the same level or a lower level than an individual’s highest existing qualification, so long as the individual will acquire ‘substantively’ new skills through doing the apprenticeship.
10. Who will provide the training?
Employers can only spend their levy funds on apprenticeship training delivered by an approved provider. This could be through buying in training from an approved provider or delivering the training themselves. To deliver training the employer would need to register as an approved provider and be subject to Skills Funding Agency (SFA) quality arrangements and Ofsted inspection. The government has published guidance for employers on how to register as an approved training provider and from May 2017 levied employers will be able to choose a provider from a new register, the register of apprenticeship training providers (RoATP). The first RoATP has now been published and applications are open for new additions until Friday 27th April. Semta Apprenticeship Service is on the register (appearing as Metskill Limited, rather than Semta Apprenticeship Service – our trading name).
11. What will employers be able to claim for each apprenticeship?
The government publishes funding bands for apprenticeships. Although they are called bands, they do not have a lower spending limit, just an upper one. There are fifteen bands, up to a maximum value of £27,000. Employers will pay month to month for the apprenticeship training and 20% of the total training cost is held back and taken from the apprenticeship service account at the end of the apprenticeship, as apprenticeship standards include an end point assessment for which the cost is incurred at the end of the programme. The full lists of funding bands for frameworks and approved standards are here. From May 2017 differentials in apprenticeship funding linked to the learners’ age will be removed.
Additional financial incentives are also available, which are outlined below:
Additional support for all employers
From May 2017 the following incentives are available to all employers:
£1,000 payment if you train a 16-18 year old apprentice
£1,000 payment when you train a 19-24 year old apprentice who has previously been in care or who has a local authority education, health or care plan
Additional financial incentives are also available in some regions. Semta Apprenticeship Service can support you to access all available sources of funding.
Additional support for smaller employers
From May 2017 the government will fund 100% of the apprentice’s training costs for employers with fewer than 50 employees, if the apprentice is aged 19-24 years old and formerly in care or with a local authority education, health and care plan.
Up to 1st August 2017, non levy payers with less than 50 employees can also receive £1,500 for each 16 to 24 year old apprentice they employ (up to five in total), if they have not employed an apprentice in the previous 12 months. This is known as the Apprenticeship Grant for Employers (AGE) for 16 to 24 year olds.
12. What about employers who don’t pay the levy?
The government estimates that 98% of employers won’t pay the levy.
All non-levy funded apprenticeships – offered by both levy payers which have run out of levy funds and non-levy payers – will be funded based on a 9:1 ratio of government to employer funding. The government is calling this ‘co-investment’.
Small employers with fewer than 50 employees will be able to train 16-18 year old apprentices at zero cost, with the government covering 100% of the cost.
13. What about employers who already pay into an existing levy scheme?
The government is working with the relevant Industry Training Boards for the construction and engineering construction sectors on how their existing arrangements will be affected and whether any changes are required. A consultation on the future of those levies has recently been carried out.
14. What if an employer doesn’t spend all the money in its apprenticeship service account?
Employers will have 24 months to spend all digital vouchers in their apprenticeship service accounts, on a ‘use it or lose it’ basis.
From April 2018, employers will be able to transfer up to 10% of their total digital vouchers for a year to another employer which uses the apprenticeship service.
15. How will standards and frameworks be funded?
There will be a STEM framework funding uplift at 40% of the current government-funded adult rate at level 2 and 80% at level 3, with the frameworks then allocated to the nearest funding bands. The government has said that apprenticeship standards will be allocated higher funding bands than equivalent frameworks, where appropriate, to reflect the higher quality and additional expense of the standards.
16. What about apprentices who need extra English and Maths help?
The government proposed that, as now, providers will be able to claim £471 per apprentice to deliver qualifications to apprentices who need training to get to the minimum (level 2) standard in English and Maths. This will be paid directly to providers by government from outside of levy funds.
17. What about Scotland, Wales and Northern Ireland?
The government will collect the levy from all UK-based employers but the new funding system will only apply in England – unless the Scottish, Welsh and Northern Irish governments and executive choose to adopt the same funding model. The government will devolve Scotland’s, Wales’ and Northern Ireland’s proportion of the apprenticeship levy, calculated through a formula, as part of the block grants to those nations. It will then be for those nations’ own devolved governments to decide how to spend the money – the Scottish Government, for example, will spend about half of its levy funds on apprenticeships and the rest on wider training and skills investment.
The government proposes that employers will be able to use levy funds and access co-investment for all apprentices whose workplaces are in England, so long as they are undertaking an English statutory apprenticeship framework or standard.
18. What is the Institute for Apprenticeships?
A new independent body established by government and led by employers to regulate the quality of apprenticeships within the context of reaching 3 million starts in 2020.
The institute’s role is to advise on setting funding caps, approve apprenticeship standards and assessment plans. From 2018, the Institute will expand its remit to also cover technical education. It will become the Institute for Apprenticeships and Technical Education.
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