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Apprenticeship Levy Q&A

May 06, 2016

Information on the Apprenticeship Levy coming in to effect in April 2017.

Why are you introducing the apprenticeship levy?

The levy is being introduced to fund a step change in apprenticeship numbers and quality – delivering on the commitment that there will be 3 million additional apprenticeship starts by 2020. The levy will put apprenticeship funding on a sustainable footing and improve the technical and professional skills of the workforce (an important component of productivity).

What is the apprenticeships levy?

0.5% of an employer’s pay bill collected monthly via PAYE. All employers will have an allowance of £15,000, which means that the levy is only applicable on pay bill over £3,000,000.

Example 1:

Example 2:

Employer of 250 employees, each with a gross salary of £20,000 would pay:

Employer of 100 employees, each with a gross salary of £20,000 would pay:

Pay bill: 250 x £20,000 = £5,000,000

Pay bill: 100 x £20,000 = £2,000,000

Levy sum: 0.5% x £5,000,000 = £25,000

Levy sum: 0.5% x £2,000,000 = £10,000

Allowance: £25,000 - £15,000 = £10,000 annual levy payment

Allowance: £10,000 - £15,000 = £0 annual levy payment

When will the levy come into effect?

In April 2017.

Why has the rate been set at 0.5% of an employer’s pay bill?

The rate was set to deliver the increase in quality that business have been asking for while ensuring it does not place an unreasonable burden on employers. This, alongside the increase in quantity that we need, is the right amount to put the funding of high-quality apprenticeship training on a sustainable footing. Unlike normal taxation, employers can get back the funds that are levied simply by investing in a sufficient amount of apprenticeship training.

What counts as an employers pay bill?

Further detail has been published by HMRC in draft legislative clauses, which can be found at https://www.gov.uk/government/publications/apprenticeship-levy

What happens to the money once it is paid under the levy?

The money will be collected by HMRC. Individual employers’ funding for apprenticeship training in England will then be made available to them via a new Digital Apprenticeship Service (DAS) account, through which employers will be able to pay for training for apprentices. The Service will also support employers to identify a training provider, choose an apprenticeship training course and find a candidate.

What are the arrangements for employers do not pay the Levy?

Employers with a pay bill of less than £3m will not have to pay the levy. This is more than 98% of all employers. These employers will continue to have access to government funding to support apprenticeships. We will provide further details on the support available later this year. All employers will have access to the Digital Apprenticeship Service whether they have paid the levy or not.

What choice will employers have about what they spend their money on?

Employers will be free to spend their money on apprenticeships training which they judge best meets their needs. For example they could spend that on in-house apprenticeships training (if the employer is a registered training provider) which meets the required quality standards for an apprenticeship, or apprenticeships training offered by another registered provider of their choice. We want to give employers in England flexibility on how they use levy funds without introducing additional and unintended complexity into the system.

Can employers spend their funding on training in their supply chain?

We know that some employers want to direct their funding to other employers, for instance their suppliers. We are looking into ways to facilitate this that are not bureaucratic, maintain the aims of the system and are compatible with State aid rules.

How will a “good” employer get out more than they put in?

The levy will put apprenticeship funding in the hands of employers and will encourage employers to invest in their apprentices and take on more. Employers in England who pay the levy and are committed to apprenticeships training will be able to get out more than they pay in to the levy through a top-up of additional funding to their digital accounts.

What do you mean by top ups and how will they work?

The government will apply a 10% top-up to monthly funds entering levy paying employers digital accounts, for apprenticeship training in England, from April 2017. I.e. All funds entering a levy payer’s account will be increased, so every £1 will be increased to £1.10 in value.

If levy money is unspent at year end, does an employer lose it?

The amount of time that an employer will have before levy funds are “sunsetted” has not been decided – employers have said they would like 12-24 months. If an employer does not spend their entire levy funds by this point then the unspent portion will be made available to other employers who are investing in apprenticeship training.

Will employers only be able to spend their levy money on apprentices?

Yes. Specifically, employers will be able to use their funding (up to a cap which will depend upon the standard or framework that is being trained against) to cover the costs of an apprentice’s training, including English and maths, assessment and certification. Currently these costs are eligible for government funding under the trailblazer standards.

It will not be possible to use levy funds to cover the salary costs of an apprentice. As now the employer will need to cover the costs of an apprentice’s wages themselves.

What are the funding caps on how much can be spent on individual apprentices?

Employers will not be able to spend an unlimited amount of money on a single apprentice. Funding caps will be set which limit the amount of levy funds an employer can spend on training for an individual apprentice. The cap will vary according to the level and type of apprenticeship (for example, more expensive, higher quality training is likely to have a higher cap).

The Institute for Apprenticeships will support the work of BIS and DfE in setting funding caps on the level of government funding available for each apprenticeship standard. Further detail on indicative funding caps for 2017-18 will be announced in the summer.

Will levy paying employers have to put in their own money as well as the levy to pay for training?

There are two circumstances where employers are likely to have to contribute additional funds i) where the cost of the training they wish to buy is greater than the funding cap for a particular standard or framework and ii) where an employer has spent all of their levy contribution and all of their top-up and wishes to spend more on additional apprenticeship training.

What do non levy paying employers or those who don’t have enough funding in their digital accounts do if they want to spend more on apprenticeship training?

Employers that have not paid the levy will be able to access Government funding for apprenticeship training. They may also need to cover part of the cost of apprenticeship training with their own funds.

Similarly, employers who have paid the levy and spent all of the funds in their levy account will be able to access Government funding to do more apprenticeship training, but it is likely that they will also need to cover part of the cost this extra training directly.

We will publish more details on this in the summer.

Will employers be required to pay admin costs for the management of the levy?

There will be no top-slice from the funds in levy accounts to pay for administration costs.

How will existing levies in the construction and engineering sectors interact with this levy?

The apprenticeship levy will be economy wide and larger employers in the construction and engineering construction industries will be in scope of the levy. We are working with the relevant Industry Training Boards who will consult with their members ahead of the introduction of the apprenticeship levy on how their existing arrangements will be affected and whether any changes are required. We are also working with other sectors, where there are existing collective training arrangements (i.e. the tonnage tax in the maritime sector), about what the apprenticeship levy means to them.

What happens to the levy for those employers who operate across the UK?

The levy will apply to employers across the UK. As skills policy is a devolved area the Devolved Administrations will continue to have complete flexibility over how to support businesses through training and apprenticeships. We are committed to doing all we can to make the system work for employers wherever they are in the UK and we are working closely with the Devolved Administrations to achieve that.

Are there likely to be any exemptions from the levy?

All employers with a pay bill over £3,000,000 will be expected to pay the apprenticeship levy. There will be no exemptions. Public sector employers with a pay bill over £3,000,000 will be in scope of the apprenticeship levy. The public sector needs to play its part in apprenticeship expansion. To ensure that it does, the government will set apprenticeship targets for public sector bodies. The public sector will be able to draw down levy funding like any other employer and we fully expect them to do so. The public sector are also subject to a target of 2.3% monitored by ministers.

What happens to those companies with their own training schemes?

Apprenticeships offer transferrable, valuable skills which are beneficial to both the apprentice and the employer. Employers who are also providers of apprenticeships training will be able to register as a training provider and receive levy funding through the Digital Apprenticeships Service.

What if an apprenticeship doesn’t exist in a sector? What happens in this situation?

Employers are encouraged to work together to design the standards and assessment plans for new apprenticeships they feel are needed. We welcome your interest in developing an apprenticeship standard for an occupation in your sector or for one that covers a number of sectors.

How do I employ an apprentice?

Employing an apprentice is very simple. The National Apprenticeship Service can provide all the information you need to know in order to employ an apprentice. There is a wealth of useful material on their website at https://www.gov.uk/take-on-an-apprentice or you can call them on 08000 150 600.

What is the Institute for Apprenticeships?

We will establish a new independent body, led by employers – the Institute for

Apprenticeships – to regulate the quality of apprenticeships. The Institute for Apprenticeships will put in place transparent mechanisms for the approval of apprenticeship standards and assessment plans, and maintain clear quality criteria so that only standards that are valued by employers will be approved and funded. It is our intention that the Institute for Apprenticeships will be fully operational by April 2017 and that it will gradually start to assume functions in 2016. More detail can be found at: https://www.gov.uk/government/publications/apprenticeships-in-england-vision-for-2020

How can I get in touch to express my views on this?

Please send queries to ApprenticeshipsLevyConsultation@bis.gsi.gov.ukIf you would like to be involved in the development of the Digital Apprenticeship Service you can register your interest by e-mailing: DAS@bis.gsi.gov.uk

When will further information on the levy be available?

Further details about the levy will be available at the following times during 2016:

  • BIS/DfE will publish an Employer Guide, outlining the operating model for the levy in April 2016

  • BIS/DfE will publish draft funding rates in June, and final funding rates in the Autumn of 2016.

Further information on the levy is also available on the gov.uk website

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