Ultimate guide to the Apprenticeship Levy May 2017
From May 2017 the way the Government funds Apprenticeships in England is changing.
What is the Apprenticeship Levy?
The Apprenticeship levy is a government initiative to fund Apprenticeships that came into effect in April 2017. This levy is only payable for employers with a total wage bill in excess of £3 million, will be paid through PAYE and is set at 0.5% of your annual pay bill.
There is an annual Apprenticeship Levy allowance of £15,000 to offset against your levy liability, which means that only those employers with an annual pay bill of over £3 million will have to pay and report the levy. This is because 0.5% of an employer’s £3 million pay bill is £15,000, which is fully removed by the £15,000 Apprenticeship Levy allowance.
The start date for spending funds as part of the new apprenticeship funding system is the 1st May 2017. Apprenticeships started from this date will be funded according to the new rules. This will apply to all employers, both those paying the levy and those that don’t.
For more detailed information on the levy visit Gov.uk.
Who will need to pay the Apprenticeship Levy?
All companies receive an offset allowance of £15,000, equivalent to 0.5% on a payroll of £3 million and any employer with a payroll above this will be liable to pay the levy.
Below is an example of an employer who will need to pay the levy with an annual pay bill of £3 million:
- Employer of 250 employees, with an average gross salary of £20,000
- Pay bill: 250 x £20,000 = £5,000,000
- Levy sum: 0.5% x £5,000,000 = £25,000
- Minus levy allowance: £25,000 – 15,000
- £10,000 annual levy payment
Paying the Levy
If you have calculated that you will pay the Apprenticeship levy, your payroll department will need to calculate, report on and pay your levy to HMRC through the PAYE process alongside National Insurance and Income Tax from April 2017.
Your annual pay bill is based on all payments to employees that are subject to employer Class 1 secondary National Insurance contributions (NICs) such as wages, bonuses and commissions. Apprenticeship levy payments are allowable for Corporation Tax.
If you’ve overpaid the Apprenticeship levy during the year, you will receive a refund as a PAYE credit.
Expiry of funds in your digital account
Levy funds will expire 24 months after they enter your digital account unless you spend them on Apprenticeship training – if you don’t use them, you will lose them.
This will also apply to any top-ups in your digital account. For example, funds entering your account in October 2017 will expire in October 2019.
Money is spent when it leaves your digital account as a payment to a training provider. The account will work on a first-in, first-out basis. To minimise the amount of expired funds, whenever a payment is taken from your digital account it will automatically use the funds that entered your account first.
Industry training levy contributions
Businesses will still need to pay the Apprenticeship Levy even if they already contribute to an industry-wide training levy arrangement, for example the Construction Industry Training Board Levy.
What can levy funds pay for?
Funds in the digital account can pay for training and assessment for Apprenticeships (with an approved provider and assessment organisation, up to its funding band maximum). These funds cannot be used to pay for wages, travel or subsidiary costs, work placements, traineeships, managerial costs or the costs of setting up an apprenticeship programme.
If you have existing staff who you wish to train they could be eligible for an Apprenticeship as long as there is a real need for them to develop new skills in order to progress in their career.
How can employers spend their levy?
Firstly, you will need to register with the Digital Apprenticeship Service (DAS) and create a digital account. This is a new on-line portal to select apprenticeship programmes, training providers and process payments.
Once levy funds have been collected by HMRC they will be held in your ‘Digital Apprenticeship Service’ (DAS) account. You will then be able to direct the funds held in your account to an ‘approved training provider’ to pay for your Apprenticeship training.
What’s in it for you?
The government will apply a 10% top-up to monthly funds entering levy paying employers digital accounts, for Apprenticeship training. This means that all funds entering a levy payer’s account will be increased, so every £1 will be increased to £1.10 in value for you to spend on Apprenticeship training.
Apprenticeship funding bands
There are currently two types of apprenticeship scheme, frameworks and standards and both will be funded in the same way.
Each Apprenticeship standard or framework will be placed into one of 15 bands, ranging from £1,500 to £27,000. These bands will determine the maximum amount that can be spent on each Apprenticeship.
The upper limit of the funding bands will also cap the maximum price that the government will ‘co-invest’, if an employer does not pay the levy or has insufficient levy funds to pay for the number of Apprenticeships they want to use. It will be up to employers to negotiate prices with providers, within these funding limits.
What happens if an employer’s levy funds don’t cover the cost of the training?
You will be expected to make a contribution to the extra cost of training if you have either used all your funds or don’t have enough to fund the number of apprenticeships you wish to train. However, additional government support will be provided to help you meet the additional costs. The government will pay 90% (up to the maximum amount of funding available for that Apprenticeship) and the employer will be expected to pay the remaining 10%. This is known as ‘co-investment’.
Additional incentive for employing 16 to 18 year olds and 19-24 year olds with additional needs
If you take on an apprentice who is between 16 and 18 years old at the start of their Apprenticeship, you will receive a £1,000 incentive to help meet the extra costs of employing them. This will also apply to 19-24 year old care leavers or young adults with additional learning needs.
The £1,000 will be paid in 2 instalments in months 3 and 12 of the Apprenticeship; initially these will be paid to the provider who will pass the money on.
If you are an employer who doesn’t currently take on apprentices and you will be affected by the levy, we would advise that you start to consider setting up a pilot apprenticeship scheme so you are in the best position to make use of your levy funds in 2017.
Non-levy payers and co-investment
Employers with a wage bill below £3 million per year won’t pay the levy and won’t need to use the Digital Apprenticeship Service (DAS) to pay for Apprenticeship training. However, they will have to pay towards the cost of an apprenticeship. Those employers are expected to pay a 10% contribution and the government will pay the remaining 90%.
- Below is an example of an employer who would not pay the levy:
- Employer of 100 employees, with an average gross salary of £20,000
- Pay bill: 100 x £20,000 = £2,000,000
- Levy sum: 0.5% x £2,000,000 = £10,000
- Minus levy allowance: £10,000 – 15,000
- £0 annual levy payment
If you will be affected by the Apprenticeship levy we would highly recommend that you start to plan now for how many apprenticeships your levy credits will cover. This will ensure you are in the best position to make the most of your levy funds from May 2017.
If your business is not affected by the levy and you are considering taking on an apprentice we would recommend you speak to our course advisers who will be happy to discuss this with you.
How can we help?
We are pleased to announce that we have been approved to supply apprenticeship training for levy paying employers and are planning to offer the following electrical apprenticeship in 2017:
- C&G 5357 Level 3 Electrical Apprenticeship
Click here to view the Apprenticeship Levy: How it will work.
Click here to view the apprenticeships support package for employers in England
Click here to view the funding bands tool
Click here to sign up to the Digital Apprenticeship Service (DAS)
Click here for guidance on using the HMRC’s Basic PAYE Tools (BPT)