Apprenticeships Levy

The Apprenticeship Levy is a new government initiative proposing to apply the levy to large employers across all industries. Here are some FAQs regarding how the funding will work and how it may impact both large and smaller employers.

The latest Government update can be found here.

Levy FAQs

1. What is the Apprenticeship Levy?

The Apprenticeship Levy is a Government initiative to change the way in which Apprenticeships are funded in England. The levy is to be paid by all large employers (employers with an annual wage bill in excess of £3 million) from April 2017, at a rate of 0.5% of this wage bill. It will be paid through Pay As You Earn (PAYE) into a digital account.

2. Who will need to pay the apprenticeship levy?

All companies will receive an offset allowance of £15,000, equivalent to 0.5% on a payroll of £3 million. Any employer with a payroll above this will be required to pay the levy.

An example of who may pay the levy:
An employer with an annual pay bill of £5 million.
Levy sum: 0.5% x £5,000,000 = £25,000
Allowance: £25,000 – 15,000 = £10,000 annual payment

An example of an employer exempt from paying the levy:
An employer with an annual pay bill of £2 million.
Levy sum: 0.5% x £2,000,000 = £10,000
Allowance: £10,000 – £15,000 = £0 annual payment

Where companies are joined, 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. This therefore means that 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. Connected companies may also pool their levy funds to pay for apprenticeship training.

3. How will the apprenticeship levy be collected?

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

4. How is the levy payment calculated?

All employers have an offset allowance of £15,000 (equal to 0.5% of £3 million). Employers with a monthly pay bill under £250,000 (equivalent to a £3m annual pay bill) will not pay the levy at all.

The £15,000 offset is divided into 12 monthly allowances of £1,250. Where 0.5% of a month’s pay bill is higher than the £1,250 allowance, the employer will pay the levy. However, if 0.5% of the monthly pay bill is under £1,250, the unused balance of the allowance will be carried to the next month.

This means that some companies might pay the levy only in months where payroll was higher than usual. However, if the company was under the £1,250 allowance in a previous month, the unused balance would be carried forward and deducted from any payment due in the higher payroll month.

5. What will employers receive in return from the levy?

Employers in England will be able to reclaim their levy contributions as digital vouchers to pay for training apprentices. This voucher system will not apply in Scotland, Wales and Northern Ireland. The Government has announced that unspent funds in an employer’s digital account will expire after 18 months. So, for example, funds entering the account in May 2017 will expire in November 2018, 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.

Employers who pay the levy will also receive a 10% top-up from the Government to their total monthly contributions in England. So for every £1 an employer pays in, they can draw down £1.10 to spend on apprenticeship training through their digital account.

10% of any unspent funds can also be transferred to other employer accounts before the end of the 18 month period (See Question 11 below for more details.

6. What can the levy funds pay for?

Funds in the digital account can pay for apprenticeship training and end 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.

7. Who sets the cost of the training?

All employers must choose a training provider and negotiate the cost of the training.Government funding caps will be set on each apprenticeship- this is the upper limit to which Government funding can be used to pay for an apprentice’s training. The proposed 15 new funding bands range from £1,500 to £27,000. The bands are still provisional and the final rates will be confirmed by Government in October 2016.

Government funding, either through the levy digital account or co-investment for non-levy payers (detailed below), cannot be used to pay for apprenticeship costs above the funding cap. If apprentice training costs are above the funding cap, the employer cannot use levy funds to make up the difference. They must fund this additional cost separately.

Where a company has used all the funds in its digital account, any further training will be funded through the ‘co-investment’ model explained below. Government co-investment cannot be used to cover training costs above the funding cap. This must be covered privately by the employer.

8. How will companies outside the apprenticeship levy fund apprenticeships?

Employers who do not pay the levy will not need to use digital vouchers to pay for apprenticeship training and assessment until at least 2018. Instead, they will need to choose a training provider from the registered list, negotiate the cost of the training and adhere to the funding caps for different qualifications, in the same way as larger firms that pay the levy.

Employers that do not pay the levy must contribute 10% of funding towards the cost of their apprenticeship training. This is called ‘co-investment‘ and the employer will make an initial payment to the training provider. The Government will then pay its share up to the funding cap limit for that apprenticeship.

9. How will training for apprentices aged 16 to 18 be funded?

The Government proposes to incentivise employers that take on a 16-18 year old, with a £1,000 payment – paid at 3 and 12 months into the apprenticeship. The training provider will also receive a £1,000 incentive to reflect the Government’s commitment to have more young people in apprenticeships and support employers with additional costs.

If a small employer (those with fewer than 50 employees) takes on a 16-18 year old apprentice, they will be exempt from paying the 10% co-investment. The training costs will be fully covered by Government (so long as they are within the funding cap).

10. Will there be any other Government payments?

The Government will provide £1,000 to an employer and £1,000 to a training provider to pay for the additional support required to take on an apprentice aged 19-24 who has previously been in care or who has a Local Authority Education, Health Care Plan. Learning providers will be able to claim up to an additional £150 a month from the Government to support an apprentice with a learning disability. This amount could be increased where a greater level of learning support is needed.

For apprentices who do not have the required minimum standard in Maths and English, the training provider will be able to claim an additional flat rate of £471 from the Government to provide this qualification (Functional Skills).

11. Can an employer transfer funds in their digital account to another employer or training provider?

From 2018, employers will be able to transfer up to 10% of the levy funds in their digital account each year to another employer with a digital account. This will allow employers to support their supply chain or other employers in their sector or community.

Employers will also be able to transfer up to 10% of the annual value of funds in their account to an Apprenticeship Training Agency (ATA). An ATA recruits, employs and arranges training for apprentices on behalf of employers.

12. How will the levy work in Scotland and Wales?

The levy applies to employers across the UK, but only employers in England will receive funding through their digital accounts. Money raised from the Apprenticeship Levy will be returned to Scotland and Wales via the Barnett Formula* with the devolved administrations in Scotland and Wales deciding how these funds will be used.

Where a company works across different nations, the amount of levy available for them to spend through the digital account in England will reflect the proportion of the pay bill paid to employees living there. This assessment will be made in early 2017, based on the data HMRC already holds on the home address of employees.

*The Barnett formula is a mechanism used by the Treasury in the United Kingdom to automatically adjust the amounts of public expenditure allocated to Northern Ireland, Scotland and Wales to reflect changes in spending levels allocated to public services across Great Britain.

13. What happens if an employer starts an apprentice before the changes are introduced?

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

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