The Apprentice Levy – FAQ’s
21st September 2016
Apprenticeship Levy FAQs
In April 2017, the way the government funds apprenticeships in England is changing. Some employers will be required to contribute to a new Apprenticeship Levy, and there will be changes to the funding for apprenticeship training for all employers (for Apprentices starting after that date).
The levy is intended to fund apprenticeship delivery in the future. It is expected to raise around £2.7 billion per year, of which around £2 billion will be available in England.
We’ve fielded many questions from clients on how the Levy will work, so we asked our Training Funding expert, Adrian Mitchell, to answer some of the most common questions he’s been asked.
How Much is the Levy?
The levy will be calculated at 0.5% of an employer’s payroll bill for all employees in the UK.
The calculation will be based on all directly employed employees but not contractors. It will include all payments made through the payroll, but not benefits. It will be applied to groups of companies but not franchises.
However, there will be a £15,000 allowance for levy payers meaning that employers with an annual payroll bill of less than £3 million will not have to pay the levy. The government expect fewer than 2% of employers to have to pay the levy.
When it is Being Introduced?
The levy will be collected on a monthly basis by HMRC. The first levy payments will be calculated based on the April 2017 payroll, meaning that the first payments will be made on or around 22nd May 2017.
Will the Levy be Refunded if the Employer Recruits Apprentices?
No, not in the form of a grant. However, in England levy funding can be spent for the delivery of apprenticeships with an approved training provider.
The employer will need to register for a Digital Apprenticeship Service (DAS) account. Employers will pay the levy on a monthly basis and the DAS account will be credited with that amount, plus a 10% government ‘top-up’.
The DAS account will track the amount of levy paid by an employer and how much is therefore available for apprenticeship delivery. The DAS will also be used to help the employer identify apprenticeship standards to best suit their employees’ job roles and to select a training provider to help with delivery. The government will transfer the employer’s levy funds to the chosen training provider on a monthly basis.
Levy payments will be available for expenditure on apprenticeships by the employer for up to 18 months from the time that they reach the DAS account.
The government are proposing that from 2018, employers may be allowed to spend up to 10% of their total DAS funds on apprenticeships for other employers, such as those in their supply chain.
How Much Levy Fund will be Needed for Each Apprentice?
Each apprenticeship for a trade or job role will be allocated to one of 15 funding bands by the government. This will denote the maximum amount of levy funding that will be required for delivery of the apprenticeship.
The employer will negotiate a price with a training provider of their choice for the delivery of an apprenticeship over an expected duration. The price can be up to the cap of the designated funding band. The funding caps range from £1,500 to £27,000.
The government will make payment to the training provider from the employer’s DAS account on a monthly basis. 80% of the payment will be available. The remaining 20% is held back to cover the costs of the apprenticeship end point assessment.
Any 16-18 year old apprentice will also attract an additional £1,000 payment from the government to both the employer and the training provider towards the extra expenses incurred in training apprentices in this age group. These amounts will be paid in two instalments at months 3 and 12 of the apprentice’s programme.
What if There Aren’t Enough Levy Funds in the DAS Account?
Employers will only need to have enough funds in their DAS account to cover the monthly cost of the apprenticeship programme as levy funds will be paid into/from the DAS account on a monthly basis.
However, levy payers who use up the funding within their DAS account will be able to continue to recruit apprentices, but will pay 10% of the agreed price with the training provider. The remaining 90% will be paid to the training provider by the government.
What are the Arrangements Outside England?
The levy funds in the DAS account can only be spent in England. The UK government has to allocate the levy take between the four devolved nations. This will be done on the basis of the residency of employees. If, for example, 80% of a workforce works in England and 20% work in Scotland, then 80% of the employer’s levy account will be made available in the (English) DAS system for expenditure on apprenticeships. The remaining 20% will be allocated to the Scottish government.
Each devolved nation is responsible for how their share of the levy is spent and they are currently consulting on how best to allocate and spend their share of the levy. They may decide to deploy different systems from England.
What About Employers with a Payroll Under £3 Million?
Employers with an annual payroll under £3 million will not be required to pay the levy.
With regard to apprenticeships from May 2017, non-levy paying employers will select a training provider of their choice and negotiate a price for an apprenticeship programme, up to the cap of the designated funding band. The employer is then liable for 10% of this price and the remaining 90% will be paid to the training provider by the government.
However, any employer with less than 50 employees recruiting a 16-18 year-old apprentice will not make any contribution towards the cost of their training i.e. the government contribution will be 100%.
As above, any 16-18 year-old apprentice will also attract an additional £1,000 payment to both the employer and the training provider towards the extra expenses incurred in training apprentices in this age group. These amounts will be paid in two instalments at months 3 and 12 of the apprentice’s programme.
Which Training Providers will be Able to Deliver the Training?
The government is creating a new Register of Apprenticeship Training Providers (RoATP).
All training providers wanting funding to deliver apprenticeship training must apply to RoATP. The training providers must directly deliver most of the apprenticeship training themselves and will have to undergo a due diligence and financial health test check. The choice of training provider to be used will rest with the employer.
What about Employers who Already pay a Levy?
In-scope employers will already pay a levy to the CITB or ECITB. These existing levy schemes will remain at least until 2018. Therefore, in-scope employers will have to pay 2 separate levies in 2017/18.
CITB is proposing to enhance its grant rates in 2017/18. CITB has set up a levy working group and is currently consulting with the construction sector on how much employers should contribute to it in future. New proposals will be put to the government during 2017.
Simian clients requiring additional info are free to contact Adrian, directly for further advice on 0345 602 2418.
Version 1. Information correct as at August 2016.