The apprenticeship levy is aimed at larger businesses
For all employers operating in the UK, the levy has been set at 0.5% of all company’s pay bill (payable through PAYE alongside income tax and NI) – but it only applies to those whose wage bill is greater than £3 million pa. Also, employers will receive £15,000 from the UK Government to offset against the levy – paid in monthly instalments of £1,250. So, if an employer has 250 staff each earning £20,000 the levy will be 0.5% of its £5 million wage bill (£25,000), minus the £15,000 they are given as the offset. This means the levy for this business is £10,000. To fall under the requirement of the levy, an organisation’s pay bill is defined as the total earnings of all its employees. It does not include other payments, like benefits in kind. UK Government figures suggest around 2% of employers will have to pay the levy.
Employers get their money back (and more), if they commit to training apprenticeships
Employers in England will be able to claim back their levy contribution in the form of digital vouchers, which they can then use to pay for training apprenticeships. Essentially this means the levy is designed purely to encourage employers to support apprenticeships. To further encourage this, those paying the levy receive an additional 10% top-up to spend on training – meaning they can draw £1.10 for every £1.00 they put in. One final incentive to use the money for apprenticeship training is the fact that the UK Government has announced any unspent funds left in an employers’ digital accounts will expire after 24 months.
Will smaller businesses be able to access the digital apprenticeship service?
Yes. Whether you pay the levy or not, the arrival of the digital apprenticeship service is relevant as it will be available to help all businesses do the following:
- select an apprenticeship framework or standard
- choose the training provider or providers you want to deliver training
- choose an assessment organisation
- post apprenticeship vacancies
And by 2020, all employers will be able to use the digital apprenticeship service to pay for the training and assessment for apprenticeships.
So how will non levy payers pay for apprenticeship training?
From April 2017 as the levy comes into existence, there will also be a new funding system for businesses that run apprenticeship programmes. The objective of the new system is to increase businesses’ purchasing power and control over apprenticeship training.
To begin with you will choose the apprenticeship you want, and the training provider you want to deliver it, and you will agree a cost for the training with the provider. The government will ask you to make a contribution to the cost of training and government will pay the rest up to a cap. The potential contribution amount is £1 from your business for every £2 provided by government up to the maximum level of funding available for that apprenticeship, although this has not been confirmed and recent news suggests there might be a higher contribution from government.
The government will ask you to pay this directly to the provider and you will be able to spread it over the life time of the apprenticeship, to an agreed schedule. As both you and the government make a payment, it’s called ‘co-investment’. The government will pay their part of the training costs direct to the provider.
Currently, the Government is also offering three additional incentives to employers running a Trailblazer apprenticeship. These incentives can be claimed:
- When an apprentice is aged 16 – 18 when they start
- When the employer is an SME
- When an apprentice completes their training, employers will receive a bonus payment
In some situations, these additional incentives will mean that 100% of training costs to the employer are covered.
How is the levy relevant to smaller businesses?
Unused levy funds, (i.e. those that have gone beyond 18 month expiry date) will be used by the government to fund apprenticeships training for SMEs. Skills Minister Nick Boles told the House of Commons in March that the £2.5bn raised by the levy for training in England would be expected to stretch to cover all employers with apprentices, regardless of their size, as there would be many employers not using the money in their digital accounts.
At the moment there is consideration being given to whether those businesses that are paying the levy can use the funds they accrue in the digital apprenticeship service to fund training for other businesses, such as smaller businesses in their supply chain.
One thing that all seemed agreed on is that the arrival of the levy will raise the profile of apprenticeships amongst all businesses, and this likely to have an impact on small businesses that are considering apprenticeships programmes.