Back in December 2015 I wrote, one week on, about the Apprenticeship Levy. Whilst the dust settled, I spent a week learning about the levy, reading articles from across the net and gathered as much information as I could, which I could then summarise to share with my network. The levy brought with it much confusion, debate and of course, opinion from across the board, as well as plenty of unanswered questions. We were promised updates in June, October and December 2016, and albeit slightly belated, the June batch of information is finally here.
Again, I’ve left it a little while to allow the dust to settle (and for me to get to grips with it myself!) So, here it is: everything you need to know about the levy update.
The Conservative Party Manifesto outlined how heavily they value apprenticeships, and committed them to delivering three million more apprenticeships in the next five years. In order to fund this increase, the Autumn Statement 2015 announced the Levy. Donned as a ‘payroll tax’ for big businesses - any company in the UK who have a payroll of over £3m per annum will be subjected to the Levy. And the reviews were mixed; some considered it a step forward, whereas others described it as a “sting in the tail”.
So what’s new?
Basically, the Government’s most recent piece of guidance details how the levy will work in practice and primarily discusses the changing in funding for apprenticeships. There are in fact, two pieces of information that the government have launched, the first: the Apprenticeship Levy: How it will work document that we’ve all been waiting for, and secondly, a (what I think could be a slightly lesser known document) entitled: Apprenticeship Funding: Proposals for Apprenticeship Funding from May 2017.Whilst the message is primarily the same, the latter document provides much more detail, whilst also offering employers the opportunity to feedback on their proposal. More about that later.
Paying the Apprenticeship Levy
Payment of the Levy applies to all employers operating in the UK, if and only if, you have a paybill of more than £3 million each year. Of course, that eliminates 98% of companies, but for the other 2%, the levy will prove to have a significant impact.
Nothing has changed in respect of how much. It will still be charged at a rate of 0.5% of your annual pay bill and all employers will be given a levy allowance of £15,000. The pay bill, in case you were wondering, is the total amount of earnings subject to Class 1 secondary NICs. Earnings below the threshold (despite not being counted when calculating an employer’s NICs) will be included for the purposes of calculating the amount of levy owed.
- Earnings include: remuneration or profit coming from employment (wages, bonuses, commissions, and pension contributions that you pay NICs on)
- Earnings do not include: benefits in kind
The levy fee will be paid directly to HMRC through PAYE.
What will you pay?
Okay, so we’re all clear that you get a £15,000 levy allowance meaning only those with pay bills of over £3 million will be affected? Yes. Good. (No? Here’s a quick sum to clarify: 0.5% x £3 million = £15,000).
The levy allowance will operate on a monthly basis and will accumulate throughout the year. So, effectively it’s £1,250 per month, and any unused allowance will be carried from one month to the next.
Conveniently, the government have given some examples of who does and doesn’t have to pay.
- Example 1: Annual pay pill of £5,000,000
0.5% x £5,000,000 = £25,000
Minus the levy allowance (£25,000 - £15,000) = £10,000 annual levy payment
- Example 2: Annual pay bill of £2,000,000
0.5% x £2,000,000 = £10,000
Minus the levy allowance (£10,000 - £15,000) = £0 annual levy payment
If you’re confused about what your payment might be, try this handy estimation tool.
When will you pay?
You will calculate, report and pay your levy to HMRC through PAYE, alongside tax and NICs.
If you are required to pay the levy, you will need to declare this and then include it in your usual PAYE payment to HMRC by the 19th or 22nd, if you report electronically.
The first levy payment will be due in May 2017.
Further guidance is due to be published in December 2016.
Right, so now we’ve cleared up what, how and when we’re going to pay, let’s talk about the benefits…
Digital Apprenticeship Service Account
Once declared through HMRC, you’ll be able to access funding for apprenticeships through a digital apprenticeship service account. Basically, this is how you will pay for apprenticeship training and assessment. The service, not yet launched, will also help you find training providers and help you develop and deliver your apprenticeship programme. (This is a different situation in Scotland, Wales and NI.) You’re eligible for an account whether you pay the levy or not. It will be used for:
- Selecting an apprenticeship framework or standard
- Choosing the training provider(s) that you want to deliver the training
- Choosing an assessment organisation
- Post apprenticeship vacancies
And if you do pay the levy, as of May 2017, you’ll have an extra few benefits, like:
- Seeing the funds you have available to spend in England
- Set the price with your training provider
- Pay for apprenticeship training and assessment
By 2020, all employers will be able to pay for training and assessment for apprenticeships.
If you don’t pay the levy, you don’t need an account to pay for training and assessment until at least 2018. When the new funding system begins in May 2016, you can choose the training you’d like your apprentices to receive, an approved training provider and an assessment organisation through the Digital Apprenticeship Service. You will be asked to make a contribution to the cost of training, and the government will pay the rest.
Currently, they’re seeking feedback on the idea that the employer will pay 10% and they pay the remaining 90%. Your thoughts on this are welcome here. The co-investment rate will be confirmed in October 2016, so let them know your feedback sooner rather than later.
But when can I access the funds?
The levy will be introduced on 6th April 2017, with payments made into the levy in May, following their April Payroll. Levy paying employers will be able to see corresponding funds in their digital accounts shortly after their final declaration to HMRC… (after May 22, 2017).
And how much will I have?
The Digital Apprenticeship Service Account (remember, this applies to England only!) will calculate how much you have to spend on training - however, will be done so through an assessment in early 2017.
Can I add to it?
Yes! You can most definitely add to it. In fact, everything you add to your Digital Service Account will be topped up 10% by the government.
What can I spend it on?
Funds in the digital account and funding provided by the government through co-investment can only be used towards the cost of apprenticeship training and assessment. This must be through an approved training provider and assessment organisation.
It cannot be used on other costs associated with your apprenticeships - for example, wages, statutory licenses to practice, travel and subsidiary costs, managerial costs, traineeships, work placement costs or costs to set up your apprenticeship programme.
There is now a strict route into choosing training providers and you will need to choose one of two options. Either training can be provided on a new apprenticeship standard, or on an existing apprenticeship framework.
- Apprenticeship Standards: are the new type of apprenticeship developed by employers. Each standard covers a specific job and sets out core skills, knowledge and behaviours an apprentice will need to be fully competent in their job role and meet the needs of employers in the sector. Standards are developed by employer groups known as trailblazers. Check out the full list of apprenticeship standards here.
- Apprenticeship Framework: Usually involves a series of work related and professional qualifications, with workplace and classroom based training. Frameworks will be phased out by 2020.
Levy-paying employers will be able to purchase training through the digital system from 1st May 2017. Once you have agreed apprenticeship training and the apprenticeship starts, monthly payments will automatically be taken from your digital account and sent directly to the provider. This allows you to spread the costs and means you don’t need to have the entire cost of the training in your account at the start. Funds will enter your account each month as you pay the levy and will leave as you pay for training.
If you don’t have enough money in your digital account, you can top it up. Anything you add to your account will be topped up 10% by the government.
If your apprentice stops or pauses their training, you are able to use your digital service account to stop or pause the payments.
In The News: A Round Up
Apprenticeships and Skills Minister, Robert Halfon, commented:
"My passion for apprenticeships and skills stem from a simple truth: they represent a huge ladder of opportunity for those seeking work, giving thousands of people the chance to go as far as their talents will take them.
[...] Some employers have been calling for the levy to be delayed. While I understand the concerns, any postponement to the levy would just delay the opportunity to create more apprenticeships. I don't believe we can postpone opportunities for the next generation. This levy will allow us to double the annual level of spending on apprenticeships between 2010-11 and 2019-20 in cash terms to £2.5 billion.
"Today I am urging employers to come forward and give their views on our proposals for funding apprenticeships. We will listen to what they have to say and work with them to make this work for everyone.” [Source: FE News]
Despite this, there are plenty of UK employers who are still calling for a delay on the levy. Carolyn Fairbairn, Director General, CBI commented:
“We welcome the government’s focus on growing investment in apprenticeships, and business stands ready to step up and increase its own commitment. However, the apprenticeship levy in its current form risks turning the clock back on recent progress through poor design and rushed timescales.
Continuing, "The levy is too narrowly defined. It covers only one type of training and employers can only reclaim off-the-job costs. As a result, valuable forms of training risk being cut back, with quantity put ahead of quality.”
Ben Willmott, the CIPD’s head of public policy, said:
“It is irresponsible for the government, particularly in a time of economic uncertainty in the aftermath of the referendum, to simply press ahead with a policy that is not fit for purpose.”
The British Retail Consortium also called for a delay. Helen Dickinson, its Chief Executive, said:
“The government should delay its introduction to 2018, allowing more time to design a truly viable system that delivers high-quality training.”
Despite this, there are still some that agree with the Apprenticeships Minister and the government. The Institute for Public Policy Research (IPPR), confirmed their feelings and said the government was right to launch the levy in April. Jonathan Clifton, IPPR’s Associate Director for Public Services commented:
“Following Brexit, British employers may not be able to rely on recruiting migrant workers to fill skills gaps, so we’ll need more apprenticeships to train up our domestic workforce.” said Jonathan Clifton, IPPR’s associate director for public services.
Reactions to the Levy
The levy has presented challenges and with them has been some clear reactions in the press. Overall, I think it’s a positive move and will provide a lot of opportunities. Here are some of the reactions I’ve been hearing across the sector:
- “We’re increasing the numbers” - This is most definitely one of the more popular responses. I have heard all sort of extremes - from 30 to 300 apprentices, and 300 to 1000! Again, I must stress that maintaining quality of these apprenticeships is going to be the key here.
- “We’re training internal staff on apprenticeships.” - One that is hugely popular in the retail sector where they have a lot of employees and clear opportunities for development.
- “We’ll take the tax” - a rarer response, but it’s happening and happening for good reasons in certain organisations. Afterall, there is no point in taking on 500 people just to claim back a levy.
- “We don’t know” - amazingly, there are still some that are unaware of the levy and what they’re going to do.
I stand by my original article and say that the levy is ‘a good move.’ I appreciate the concern of the larger, levy-paying employers and their opinion to delay the levy following the Brexit uncertainty, however, in the words of Primo Levi (or the title track of Incubus’ seventh studio album), If Not Now, When?
It is the uncertainty, I think, that makes this a good thing. Whilst the whole nation was in shock following the Brexit vote, what we really need is for the government to steady the ship and press on with their original, pre-Brexit plans, and that includes the levy. The June update to follow the November announcement was pushed back two months which only caused further uncertainty and anxiety and does not fill the country, employers or otherwise, with confidence.
And that is why I think it is imperative to continue with the original deadlines. The three million more apprenticeships goal still stands and so it’s going to be a challenge, so we must all work together to achieve this plan and ensure the future of Britain’s workforce.
But what do you think?
We welcome your thoughts and opinions on all of our articles, and recognise that the levy is a sensitive and heavily-debated topic for some. That said, we do want to hear what you think, whether it is a good move, and should press-on nonetheless, or should it be postponed?