Levy

How it works – What you need to know

Apprenticeship: Levy and Non-Levy

Starting in 1 May 2017 and continuing to develop until 2020, the Government is reforming the way Apprenticeship training is handled.  Training Providers, Colleges, and Awarding Bodies will no longer have control over Apprenticeship funding, instead control will be in the hands of the Employers.  The initial focus will be on the introduction of an Apprenticeship Levy for employers with a salary bill of over £3m.

Reform

Why is reform needed?

The Government believes there is a considerable skills gap when viewed against other developed economies. Equally, employers feel that existing Apprenticeship frameworks are not fit for industry requirements.

As such, the Government has set a target of creating 3 million new apprentices by 2020. To help achieve this, they want employers to contribute towards their Apprenticeship training budget to access government funding.

What is being changed

Employers will no longer access funding via their approved training provider or College*. Instead, the employer will use a voucher system through a Digital Apprenticeship Service (DAS).

The current Apprenticeship ‘Frameworks’ are also being redesigned to a set of ‘Standards’, defined by employer groups and recognised by industry.

Who will reform affect?
Reforms will affect any employer, training provider or assessment organisation that are involved in the delivery of Apprenticeships. There will be two systems running side-by-side in 2017, one for levy paying employers (an estimated 22,000) and one for smaller employers (an estimated 100,000). Some features of the system will be the same; some will be different.
Apprenticeship Levy Paying Companies

From May 2017, employers with a total pay bill of over £3m will automatically pay a 0.5% ‘levy’ to fund their Apprenticeship training.

The first time eligible employers will have to declare their liability to HMRC will be in May 2017 for levy due on their April payroll and will see funds in their account from 22nd May.

This contribution will be offset by a £15,000 allowance.

The levy will be collected by HMRC each month, directly via PAYE processes.

No employer, whether they train apprentices or not, is exempt from the levy. This includes charities, public sector organisations, local authorities and the education sector.

How will the Levy work in reality?

Below is an example of how a company whose wage bill of £6m, will contribute towards the levy.

  • 5%levy sum x£6m wage bill = £30,000 levy;
  • £30,000levy –£15,000 allowance = £15,000

Employers in England who pay the levy and are committed to apprenticeship training will also receive a 10% top-up, directly into their DAS account.  That means for every £1 that enters an employer’s digital account, they will actually receive £1.10.

What happens to an employer's levy contributions?

It has been suggested that 100% of the value of the monthly levy deduction will go into an employer’s DAS account. Employers should see funds appear in their digital account monthly, a few working days after confirming their pay bill and levy contribution to HRMC for the previous month.

Applying this same wage bill to a monthly scenario can be seen below:

May 2017*

  • 5%levy sum x £500,000monthly wage bill = £2,500 levy;
  • £2,500levy – £1,250allowance = £1,250 payment;
  • £1,250payment + £125Government Top-up = £1,375 DAS Spend.

This example is for a company with 100% of its employees living in England. Further regulations apply for companies whose employees live in Scotland, Wales or Northern Ireland.

Can I use the levy funds to offer apprenticeships to existing staff?
Existing staff will be eligible as long as the apprenticeship is relevant to their role and the most appropriate way of progressing/developing the learners career as a result i.e. upon completing the apprenticeship the member of staff will be promoted, given more responsibility, or moved into a more senior role.
Will I be able to draw on apprenticeship funding for existing staff who are on a contract of employment?
Yes, but an apprenticeship is subject to a minimum length so you must make a commitment for that person to be with you for 12 months.
Are employers required to give apprentices time off work to study?
Yes – you must give apprentices time off to study during their working hours. The number of hours and study mode is dependent on the standards and qualifications included. Do bear in mind that there will be no National Insurance payments for apprentices from April 2016 as the Government acknowledge employers must give study time.
Who can deliver an Employer's training?

The DAS will provide details of training providers that can offer the desired Apprenticeship. The system will enable virtual payments to providers that are delivering Apprenticeships for the employer. This will allow the employer to approach the provider(s) to negotiate funding, contributions and payment schedule.

Paying for an Apprenticeship?

Once an employer has selected their Framework or Standard, monthly payments will be taken out automatically and sent to the training provider over the lifetime of the Apprenticeship.  It is proposed that 20% of the total cost is held back and taken at the end of the Apprenticeship. The limit on how much an employer can spend on an Apprenticeship Framework or Standard will be determined by 15 funding bands.

If an employer doesn’t spend their levy, what will happen to it?

Employers will be given 24 months from May 2017 to use the levy. If they don’t use it in that time, it will be given to other employers to use. For example, funds which enter an employer’s account in September 2017 will expire in March 2019. The digital account will let an employer know in good time when funds are due to expire.

What happens if an employer has used all, or has insufficient, funds in their Digital account?

Employers who pay a small levy or invest in a lot of apprenticeship training may find that there are insufficient funds in their digital account to cover the cost of training. In these circumstances, it is proposed that the Government pay 90% of the additional costs incurred with the employer contributing 10% directly to the training provider.

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