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The Apprenticeship Levy – what employers need to know

Created: February 2017

Over the last decade, huge strides have been made in reforming apprenticeships and making them fit for purpose. The government sees them as a vital tool in tackling the growing skills gap that has been increasingly apparent in many sectors of the economy for some time.

The introduction of a new apprenticeship levy in April will provide a fund to support the government’s ambition to support 3m high-quality apprenticeships by 2020. It will be applied to companies across the UK, replacing all apprenticeship funding currently provided by the government for companies of all sizes.

How the levy is charged
As from 6th April, any organisation operating in the UK with an annual pay bill of more than £3m will be required to invest in apprenticeships via the apprenticeship levy. In this instance, an employer is classed as someone who pays Class 1 secondary National Insurance Contributions for their employees. The levy will be charged at a rate of 0.5 per cent of the annual pay bill, and paid monthly through the PAYE system from May 2017. The money will be transferred into a ring-fenced account, and can be drawn down in the form of digital vouchers.

The incentives on offer
The levy comes with incentives. These include an annual £15,000 allowance to offset the levy. So, for example, a company with a pay bill of £5m will have a levy sum of £25,000 which, after the deduction of the £15,000 allowance will result in an annual levy payment of £10,000.

There’s also £1,000 available for taking on 16 to 18-year-old apprentices (and 19-24-year-olds with a Local Authority education, health and care plan), and cash incentives for offering training apprenticeships in some of the most deprived areas of the country. In addition, employers in England will receive a 10 per cent monthly top-up. This means that for every £1 of levy paid, firms get £1.10 to spend on training.

Employers who don’t want to spend their training fund on their own staff, can ‘donate’ up to 10 per cent of the annual value of their fund to employers in their supply chain. Levy-paying companies in an already designated group of companies will be able to pool their funds into one apprenticeship account.

Using the apprenticeship scheme
Apprentices must be employed for at least 30 hours a week, and be paid at least the apprenticeship minimum wage (£3.50 per hour from 1 April 2017). They must be given time away from their main duties to complete off-job training and assessment requirements.

This new scheme offers wider eligibility criteria than previous ones, meaning that employers will have more input and control over designing and choosing the apprenticeship training they want for their staff. They will be able to train new team members, upskill existing staff and support their succession plans. Apprentices can be of any age, meaning that older workers, or those returning to the workplace after parental leave, can also be included in the scheme.

The funds built up in an employer’s apprenticeship service account can be accessed to provide appropriate training from a government-approved training provider through the digital voucher scheme. Using the online Digital Apprenticeship Service (only available to businesses in England, separate measures apply in Scotland, Wales and Northern Ireland) they can choose training providers and the organisation they want to use to assess their apprenticeships. They will also be able to post apprenticeship vacancies.

When they buy apprenticeship training through the service, the funds will be paid from their account directly to the training provider each month. However, any funds including top-ups accrued for, but not spent, expire after 24 months. Reminders will be sent to firms before the expiry date.

Employers that don’t pay the levy
Organisations who aren’t liable for the levy won’t need to access the apprenticeship service to pay for apprenticeship training and assessment until at least 2018. From May 2017, these employers will be asked to make an initial contribution to the cost on an apprenticeship of 10 per cent of the price negotiated with their training, with 90 per cent paid by the government.

Why businesses should take advantage of what’s on offer
The changes to the apprenticeship scheme mean that any large company that pays the levy but doesn’t take the opportunity to create apprenticeships will miss out on the incentives on offer.

Research has shown that 96 per cent of businesses say they have benefitted from taking on an apprentice; 80 per cent of companies report better rates of staff retention. More than 92 per cent of employers say that apprenticeships lead to improved staff satisfaction and improved motivation.

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