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UK HR E-briefing: Counting down to the apprenticeship levy - 4 months to go!

  • United Kingdom
  • Employment law - HR E-Brief


With the very many other political and economic issues to take on board in recent months, the quieter advance of the apprenticeship levy in April 2017 may have slipped off the radar of some employers.

With just 4 months to go, it is important that those liable to pay the levy prepare financially and administratively for its introduction. These employers, in particular, should be thinking constructively about how they might use their contribution to best effect, whether through new apprenticeship initiatives or expansion of existing training all the way up to graduate level. However, all employers should consider the potentially significant impact of the levy on future access to skills and training budgets.

For an overview of the application of the levy, see our flowchart here

On election in 2015, the government revealed ambitious targets to increase dramatically the number of apprenticeships in the UK, to be funded substantially by employers themselves. Proposals for a new levy on large employers then emerged, with the aim of supporting three million new apprenticeships for over-16 year olds by 2020.

In principle, UK employers with a pay bill exceeding £3 million will be subject to the levy. This applies to all such employers, regardless of their engagement (or otherwise) in apprenticeship schemes or of their location within UK.

Levy, what levy?
A levy of 0.5% of the pay bill of applicable larger employers will be collected through PAYE alongside income tax and NI. The pay bill will be calculated with reference to total employee earnings (not additional payments, such as benefits in kind) and will be payable by the employer monthly. An allowance of £15,000 will be available to offset against payment of the levy (and, in some cases, will operate to reduce the pay bill below the threshold at which the levy applies). For companies in a group, only one allowance of £15,000 will be available and it will be for the companies themselves to decide how this is apportioned.

Importantly, employers will need to declare any levy liability to HMRC by April 2017 and to adjust their PAYE systems appropriately, in readiness.

A straightforward example of levy contribution provided by BEIS is as follows:an employer of 250 employees, each with a gross salary of £20,000

Pay bill = £5,000,000 (250 x £20,000)
Levy sum at 0.5% = £25,000 (0.5% x £5,000)
Allowance to be deducted = £15,000
Total annual levy payment = £10,000

Although there are still some practical details to be finalised, the levy will apply from April 2017 and will be accessible to employers from May 2017. The levy will not affect the funding for apprenticeships commencing before 1 May 2017 and those funding arrangements will continue to apply for the duration of those apprenticeships.

Which employers?
The levy will be collected from UK public and private sector employers with a pay bill in excess of £3,000,000. The levy is payable whether or not employers engage apprentices and is estimated to apply to some 2% of UK employers.

Although skills training is a devolved policy issue, the levy will apply to employers in Northern Ireland, Wales and Scotland, just as those in England. The government plans to work with those devolved administrations to resolve how they intend the levy to operate in their areas. At present, it appears that these regions plan to utilise the additional funds as a supplement to existing funding arrangements, rather than put in place any centralised digital system comparable to that being set up in England.

Detailed guidance on how some aspects of the levy will operate is still awaited, particularly for less straight-forward cases, such as where the monthly pay bill fluctuates throughout the year and is likely to affect the calculation of monthly instalments. Even so, the clearly stated aim of government is that the levy is to be universally applicable. So, for example, the pay bill of employers of associated companies will be added together to determine liability, even though only one £15,000 allowance will be available. The draft implementing regulations also contain broad anti-avoidance provisions aimed at ensuring any deliberate attempt to avoid or limit liability for the levy will be ineffective and may lead to financial penalty.

Access to the funds
The objective of the levy is to support apprenticeship training for all employers committed to training. The funding it generates will be accessible for accredited apprenticeship courses, whether in the form of an apprenticeship standard or framework (the latter of which are being phased out, gradually). The cost of training towards an apprenticeship is also capped according to government scales, referred to as “funding tariffs”.

  • Levy-payers: In England, employers will be able to manage their levy funds and expenditure via a new digital apprenticeship service (DAS), with which they can register from January. For those employers, the proportion of levy contributions payable into DAS will be based upon the percentage of staff resident in England. Contributors to DAS will also receive a government “top up” of 10% of the levy funds they pay in. To access funding, employers in England will need to register the desired apprenticeship course with DAS, following which they will receive confirmation of available funding and be issued with vouchers to spend with the applicable registered training provider.

Employers based elsewhere in the UK will not have access to DAS but will be able to access funds through whatever arrangements apply in their region currently. The voucher scheme will also not apply in these regions, although the devolved governments are reviewing options, including the terms of funding-allocation and access for levy-payers to their respective contributions.

  • Non-levy-payers: A vital aspect of the levy is that it provides additional funding for apprenticeships in general. Since not all employers who pay the levy will make use of their contributions to support apprenticeships, or make use of them in full, this will leave a surplus which will boost government coffers for the benefit of other employers.

Employers who are not subject to the levy will have access to financial support from government for up to 90% of their apprenticeship costs, bearing approximately 10% of the costs themselves. A shortfall in funds on the part of levy-payers will also be largely met by government (provided the training falls within the appropriate funding tariff).

Additional funding for younger apprentices
To continue to incentivise employers to recruit younger apprentices aged 16 to 18, or those aged 19 to 24 who have been in care, the full cost of apprenticeship training for these younger recruits will be met for smaller employers with fewer than 50 staff. For all other employers (whether or not they are levy-payers) the government will offer additional financial support of £1,000 for each recruit in these categories. These payments will be made in two equal instalments, paid initially to the training provider. Training providers will also receive a payment of £1,000, in these cases, and, as a transitional measure as they move from apprenticeship frameworks to apprenticeship standards, the new funding tariffs will be increased temporarily by 20%.

Quality controls
Quality control is, and remains, a key concern for employers in the context of apprenticeships. The government is reviewing options for ensuring quality control, at the heart of which is a new employer-led Institute for Apprenticeships as an independent body to regulate quality and which is due to be operational in the coming months. Training providers and the value for money they offer will also be monitored.

Many larger employers who will be most-affected by the planned levy have made preparations for the financial and training implications it will bring about in the ensuing months. However, when one considers that organisations employing as few as 110 staff1 may need to pay this training supplement, there are also likely to be many who have yet to plan or to make appropriate financial provision.

Used wisely and constructively, the boost in funding offered by the levy could produce significant benefits for employers. However, it is apparent that information concerning the funding-changes is proving slow to reach employers. Moreover, far greater creative thought will be needed on the part of employers if the opportunities of extended funding are to be exploited. For some, the levy will provide a platform for boosting existing training facility. For example, graduate training might be adapted or extended into the apprenticeship regime, as identified as an objective of many new standards. However, for others, it will present a significant challenge in identifying training which maximise use of the levy contribution as far as possible or avoids costly duplication.

1  Research report, “The apprenticeship levy: how will employers respond?” by the Department of Education October, 2016 and based upon an approximate average annual salary in UK in 2016 of £27,500.

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