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What does the Apprenticeship Levy Mean for Your Business


How Will the Apprenticeship Levy Affect Your Business?

With the Apprenticeship Levy due to be collected by HMRC from April 2017, you may be wondering what this surprise payroll tax will mean for your business. Announced in the government’s 2015 Autumn Statement, the levy is being put in place to help fund an increase in apprenticeship numbers and quality, and build an experienced workforce for the future.

If you need advice and guidance as we approach the levy, or want to take on an apprentice while they are still publicly funded, you can get in touch with us here.

Below is a breakdown of what we know about the levy so far:


Who will be affected by the levy?

The Apprenticeship Levy will be applied to all UK businesses in both private and public sectors. Businesses with an annual wage bill of over £3 million will have to make payments, which will result in less than 2% of employers across the UK paying the levy.

These larger organisations will need to pay the levy, regardless of whether they reclaim their digital funds to purchase apprenticeship training and services or not. Every business who pays the levy will be entitled to an allowance of £15,000 to offset against their payment.

It has also been indicated that non-levy paying employers will also have to make a financial cash contribution towards new apprenticeship starts from April 2017 onwards. As of the August 12th updates, businesses of all sizes will only be required to contribute 10% of the cost of training an apprentice.

They will then be able to access government funding in the form of co-investment, and may receive financial incentives.

How will the levy be collected?

The first Apprenticeship Levy PAYE return will be due in April 2017. It will be applied at a rate of 0.5% of the annual paybill, and will be collected monthly by HMRC through the PAYE system.

To keep the process as simple as possible, “paybill” will be based on total employee earnings subject to Class 1 secondary NICs. You can find more information on HMRC’s guidance page here.

Below are a couple of examples of how the levy will work. You can also estimate how much your organisation will spend on apprenticeships using this calculator.

Employer of 250 employees, each with a gross salary of £20,000
Paybill: 250 x £20,000 = £5,000,000
Gross Levy Due: 0.5% x £5,000,000 = £25,000
Application of Allowance: £25,000 – £15,000 = £10,000
Net Levy Due: £10,000

Employer of 100 employees, each with a gross salary of £20,000
Paybill: 100 x £20,000 = £2,000,000
Gross Levy Due: 0.5% x £2,000,000 = £10,000
Application of Allowance: £10,000 – £15,000 = £0
Net Levy Due: £0.

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What is the aim of the levy?

With the government committed to achieving 3 million apprenticeships by 2020, the levy is designed to encourage employers to take on apprentices, and maximise their return on their investment.

The Apprenticeship Levy will also aim to raise £3billion a year to increase the quality of apprenticeships, addressing the skills gaps in the UK workforce while raising the profile of apprenticeships to the same level as university courses.

How will it work in practice?

The government will create the Digital Apprenticeship Service – an online portal to which all organisations will have access, regardless of whether they will pay levy contributions or not. However, it is expected that use of the Digital Apprenticeship Service to select and pay for apprenticeship training will initially be made available only to employers with a wage bill of over £3m per year.

Non-levy payers will not have access to The Digital Apprenticeship Service to pay for apprenticeship training until at least the year 2018. Instead, they will pay their chosen training provider directly, who will then draw down appropriate co-investment from the government.

The Digital Apprenticeship Service will essentially enable employers to ‘shop’ for apprenticeships, and find accredited training providers, paying for them from their digital account. For non-levy paying employers, the government is launching a new register of approved apprenticeship training providers, and from this register employers can choose their selected provider.

The government believes this will help to stimulate the market, and make the funding and selection of apprenticeship training and assessment easier to use.

How will this affect training for apprentices?

Employers will be able to spend their levy funds on training apprentices on either new apprenticeship standards or existing apprenticeship frameworks. This can be for either existing staff or new recruits, as long as the training meets an approved standard, and the individual is eligible for the chosen apprenticeship.

Employers that pay the levy will have the choice to be involved in developing apprenticeship standards that meet the needs of their business. By 2020, all apprenticeship frameworks will be replaced by new apprenticeship standards, designed by employers, for employers.

As of the August 2016 update, employers will also now be able to use their levy funds to train current workers with new skills, even if they already have prior qualifications. This will give employers the freedom to make training decisions that will benefit them and the individual, so long as the new qualification is vastly different from their previous ones.

In the interim, employers are able to choose whether their employees undertake existing frameworks, or new standards if they are available for delivery. The full list of newly available apprenticeship standards is available here.

Learn all about the upcoming apprenticeship reforms in this free webinar.

Sign up for a link of the recording.


How will this affect smaller businesses?

Most companies – particularly SMEs – will not be in scope to pay the Apprenticeship Levy. However, from April 2017 the way apprenticeship are funded is changing, as non-levy paying employers will have to make a mandatory cash contribution of 10% to train the apprentice, and the government will ‘co-invest’ by paying the remaining 90 per cent.

However, smaller firms with fewer than 50 employees who will take on an apprentice aged between 16 and 18 years old will not be required to make any financial contribution towards their cost of training. The business will also receive a £1,000 cash incentive for taking on the apprentice, with an additional £1,000 payment to the training provider.

What should employers do now?

It’s still early days, but information has already been released about the mechanisms of the levy, and the non-levy co-contribution model that will be coming in from April 2017.

BIS (Department for Business, Innovation and Skills) have published a draft version of the rules employers need to start developing detailed plans. These rules explore funding bands for each standard or framework, eligibility of candidates for funding, and incentives for employers, which are available to view here. The Skills Funding Agency have also published a calculator that allows you to estimate the amount levy-payers will have available to spend on apprenticeships.

As the details are finalised and questions are answered, we will be there to update you. You can always contact us here for tailored advice for your company.

In the meantime, employers should strengthen their experience of managing apprenticeship programmes whilst they are publicly funded to develop a better understanding of the benefits they can bring to your business. There is no better time to take on apprentices than now.


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