Many employers across the UK have questions and concerns about the approaching Apprenticeship Levy.
We are passionate about Apprenticeships and are determined to help employers understand the changes and the impact this will have on your business. To help you, our Business Development Assistant, Marta Wyrostek, has answered some of the most commonly asked questions around the Apprenticeship Levy and its impact, both in England and Wales.
Across the UK
What is Apprenticeship Levy?
Apprenticeship Levy is a UK Government’s incentive introduced to help increase employers’ interest in Apprenticeship programmes and change the way they’re funded. All employers operating in the UK, with a pay bill over £3 million each year will have to make an investment in Apprenticeships. You can benefit from this investment by training Apprentices. The reform will go live on the 6th of April 2017.
Will my business have to pay the Levy?
Only the companies whose pay bill is over £3 million in a given year will pay the Levy. This means it will only affect around 2% employers in the UK. The Levy will be 0.5% of your annual pay bill, but you will have an allowance of £15,000 per year to offset against the Levy payment.
Remember, the allowance is not money that you receive and spend on training! It’s much like the personal allowance you get on your earnings. You only pay your taxes above the amount set by the Government at the beginning of the tax year.
Please keep in mind, Public Sector organisations and businesses already paying a sector-specific Levy will still be charged with Apprenticeship Levy.
How is it calculated?
The Levy payments are calculated based on your pay bill and the total amount of earnings. These include wages, bonuses, commissions, and pension contributions that you pay NICs on, but not the in-kind benefits.
Your £15,000 allowance will be spread throughout the tax year, giving you an offset of £1,250 a month. Any unused allowance will be carried over to the next month, just like unused minutes on your phone bill. For example, if your Levy charge in month 1 is £1,000 you will not pay the Levy and your allowance in month 2 will be £1,500 (the usual £1,250 + £250 that you haven’t used the previous month).
If your pay bill varies through the year, i.e. because you employ seasonal workers, you will only have to pay the Levy for the months when you exceeded your allowance. If you then have some unused allowance in the following months, payments can be returned to you as credit to cover your other payments to PAYE.
If you have multiple PAYE schemes and do not use the full £15,000 you will be able to offset the unused amount against another one of your schemes once the tax year has ended.
You can estimate your Levy payments using the online calculator:
How is the Levy paid?
The Levy is payable to HM Revenue and Customs (HMRC) through the PAYE process, same way as the tax and National Insurance contributions. You will need to declare if you will be paying the Levy for the previous month before the 19th (or the 22nd if you report electronically) of each month. Your first declaration will be in May 2017. That’s also when you can start using it to purchase training, as the cost of an Apprenticeship is spread over its’ duration and you don’t need to wait to accumulate the full amount.
Are there any other changes to Apprenticeships in the nearest future?
All current Apprenticeship Frameworks are going to be replaced by Standards, which are more specific to learner’s job role and industry. These Standards are being designed by employer groups and aim at fulfilling skill gaps within specific industry. Unlike the current Apprenticeship model, they will all require an end-point-assessment. Standards will gradually replace all existing Frameworks and the whole process is expected to be finished by the end of 2019/20.
How can I access my Levy pot and purchase training?
Once you have declared the Levy to HMRC you will be able to access funding for Apprenticeships through a new digital Apprenticeship service account (DASA), which will allow payment for Apprenticeships and assessments and pick a company to deliver them from a list of approved training providers. The funds will be drawn from your account on first in – first out basis, but will expire if you don’t spend them within 24 months. If you are a multinational employer the amount available in your digital account will be proportionate to the portion of the pay bill being paid to employees living in England.
All the funds in your digital account get a 10% top-up from the Government.
What can I spend my funds on?
Digital funds and government top-up can be used on Apprenticeship delivery and assessment. It cannot cover your Apprentice’s wages, travel and other business costs. You can choose to train your existing employees or hire a new Apprentice. You won’t be able to pay for traineeships or work placement programmes using your Levy pot.
How much will the training cost?
There will be 15 different funding bands for Apprenticeships. These bands determine the maximum amount you can draw from your digital account to pay for delivery and assessment. You can negotiate the rates with the provider to get the most of your Levy pot.
If the training programme has an added value that makes the cost rise above the band, you will need to pay the excess directly to the training provider.
Here are the funding bands proposed by the Government:
What if I run out of funds but want to train more people?
If the funds in your Levy pot have run out, but you want to train more Apprentices, you will need to provide 10% of the training value in cash and the rest will be covered by the Government.
Our business does not qualify to pay the Levy. Will we have to cover the full cost of training?
In England, if you’re not required to pay the Levy, you will still be able to access funding, but will be required to make a 10% cash contribution to the cost of training your Apprentices. If you employ less than 50 people you will receive extra funds for hiring an Apprentice between 16 and 18 years old and disadvantaged Apprentices up to the age of 24. The training for those Apprentices will be fully funded.
Will the funding rules in Wales change?
The Welsh Government isn’t planning to introduce a digital voucher system. The funding rules are most likely to stay the same, with Apprenticeships being fully-funded for eligible learners with both levied and non-levied employers.
Why is the Welsh Apprenticeship funding system different?
The principle of a Devolved Government in Wales is to allocate the resources in the Budget according to Welsh priorities, and deliver Apprenticeships that meet Wales’ specific economy needs. Regional Skills Partnerships have been established across Wales to provide information on skill gaps among Welsh workforce and employers’ needs. The Welsh Government has made a commitment to funding a minimum of 100,000 Apprenticeships and you don’t need to wait until next year to benefit from them.
What happens to my Levy contribution?
In Wales the Government won’t know how much the employers have paid to HMRC and the funding won’t be ring-fenced. However, the Government will allocate the funds to continue providing high quality Apprenticeships.
However, the UK Government is working with devolved administrations on proposals that would allow you to use your funds and access government support for training employees whose main workplace is England.
There are lots of issues that remain unclear around companies that operate and employ staff across the UK and how the Apprenticeship Levy will work for them. We will try to keep you as up-to-date and informed as possible as plans unfold and are announced by the Government.