Apprenticeship Levy

The way the government funds apprenticeships in England is changing and some employers, based on the size of their pay bill, will be required (mandated) to pay a contribution towards a new apprenticeship levy and invest in apprenticeships.

Why is this being introduced, and what will it be used for?

  • The main aim of the apprenticeship levy is to support employers in growing the number and quality of apprenticeships in their own workforce, and to support the government to ensure the availability of more high-quality apprenticeship opportunities;
  • The levy will be used to pay for the costs of the training and employers will also be expected, as a minimum, to pay at least the appropriate statutory wage for their apprentice(s): the apprenticeship minimum wage is £3.30 for those under 18 and those aged under 19 or in their first year of their apprenticeship, rising to £3.87 (under 18); £5.30 for those aged 18 to 20; and £6.70 (age 21 and over);
  • From 1 April 2016 the National Living Wage must be paid to employees aged 25 and older.

Who will have to pay, and how much?

Employers* with an annual pay bill of over £3 million each year will be required to contribute 0.5% of their annual pay bill towards an apprenticeship levy.

What steps does an employer have to follow and what happens to this money?

  • Employers need to calculate, report and pay their levy to HMRC, through the PAYE process alongside tax and NICs. Employers who have declared the levy to HMRC will then be able to access funding (their levy money) for apprenticeships through a new digital apprenticeship service account;
  • Government has advised that those employers who have calculated that they will pay the apprenticeship levy will need to declare this and include it in their usual PAYE payment to HMRC by the 19th (or 22nd if employers report electronically) of the following month;
  • The first submission in which employers will declare that they will pay the levy will therefore be in May 2017.

How do employers access the new digital apprenticeship service?

  • Online tools for employers will be available via the digital apprenticeship service over the course of the new year;
  • Employers will be able to register to create an account from January 2017 which will enable employers to familiarise themselves with the new service.

How does the levy and allowance work in practice?

  • Employers will have a levy allowance of £15,000 per year (£1,250 per month) to offset against the levy that they pay and therefore employers will only pay the levy if their pay bill exceeds £3 million in a given year;
  • The annual levy and annual allowance is split into monthly payments and will accumulate over the course of the year;
  • If an employer’s first month’s levy contribution is calculated as being £1, 000, because there is a monthly allowance of £1,250 to offset against the £1, 000 monthly levy payment, the first month’s levy contribution is zero with the remaining £250 unspent allowance added to month two’s, allowance- and so on.

When will the new system start?

These new proposals will go live from 1st May 2017 and an employer’s first contribution to the levy from their pay bill will be paid in April 2017.

Will employers lose their levy money if they don’t either recruit apprentices, or spend it by upskilling their existing workforce through the apprenticeship programme?

  • Yes. Funds in a digital account will expire 18 months after they enter an employer’sn digital account unless they are spent on apprenticeship training. This also applies to account top-ups. Essentially, the account will work on a first-in, first-out basis;
  • From 2018, the government is proposing to allow employers to transfer or pool up to 10% of their levy funds to another employer- such as those employers in the supply chain.

What about those employers that don’t have to pay the levy as proposed?

  • Those employers who are not liable currently to have to pay the levy will, over time, also be able to manage all of their apprenticeship recruitment through the new digital apprenticeship service and access all of the service’s functionality;
  • Employers who do not pay the levy will initially be able to search for training and search for a provider using the tools in the new digital apprenticeship service and be encouraged to negotiate with providers in order to agree a costed package of training support;
  • However, non-levy paying employers will not need to use the digital apprenticeship service to pay for apprenticeship training and assessment until at least 2018. The government plans to support current non-levy paying employers to move to the new system for paying for apprenticeships when it confirms the requirement for doing so.

Campaign to increase Apprenticeships In England

The Department for Education (DfE) has published details about the future of apprenticeship funding for firms that do not pay the Apprenticeship Levy. The levy does not apply to firms with an annual wage bill of less than £3 million a year. From 1 May 2017, the 'STEP' funding model will set out the four ways that non-levy-paying firms can access apprenticeship funding. Under STEP, the DfE will cover 90% of the cost of training an apprentice, while employers with less than 50 members of staff will pay nothing to train an apprentice aged 16 to 18. A £1,000 grant will also be paid to any small firm that takes on an apprentice aged 16 to 19.

More information can found at the following government website here.

* For the purposes of the levy, an ‘employer’ is someone who is a secondary contributor, with liability to pay Class 1 secondary National Insurance contributions (NICs) for their employees.

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