Apprenticeship levy – use or lose it
01 September 2019
This article was featured in the September 2019 issue of the magazine.
Jill Smith MCIPPdip, CIPP policy manager, explains how the apprenticeship levy and funding operate
From about the start of the last major recession, which was 2007, there has been an increase in unemployment particularly in people leaving school, college and higher education establishments, such as universities. Government has continually been looking at ways to address this issue as this category of the unemployed presents both a social issue and has the potential to impact a whole generation.
Prior to April 2015 the apprenticeship programmes were voluntary, and despite the support of government through financial incentives and the subsidies for training and salaries, they have largely collapsed or been exploited. The apprenticeship levy (‘the levy’) was announced by Chancellor of the Exchequer George Osborne in the July 2015 budget. It was subsequently incorporated into law by Part 6 of the Finance Act 2016 and came into effect at the start of the 2017–18 tax year.
Skills and training are devolved policy areas and whilst the levy is UK-wide this article focusses on arrangements for England. To be eligible to undertake an apprenticeship in England an employee’s workplace must be in England and they must spend most (50% or more) of their time in England during their apprenticeship. It does not matter if the employee’s place of residence is or is not in England.
When you need to pay it
The levy is paid through the pay as you earn (PAYE) process in the same way employers pay income tax or National Insurance contributions. The levy is payable by all employers with an annual pay bill in excess of £3,000,000. This includes smaller employers that are connected to other businesses or charities for the employment allowance if in total they have an annual pay bill of more than £3,000,000.
The ‘pay bill’ is defined as earnings such as wages, commissions and bonuses liable to class 1 secondary National Insurance contributions. The levy is payable at 0.5% of the employer’s pay bill.
If an employer is not connected to another business or charity they will have a levy allowance of £15,000 each year, which reduces the amount payable by £15,000 across the year. This means that only employers with an annual pay bill of more than £3,000,000 will pay the levy. Associated companies or charities will only have one £15,000 allowance to share between them.
How to invest the levy
All levy paying employers need to register for an apprenticeship service account (‘the account’). Once this has been actioned the money can then be paid across into this account. Funds in this account can only be used for apprenticeship training and assessment.
The account is currently only available to employers that pay the levy or to non-levy paying employers in receipt of a transfer of funds from a levy paying employer.
The amount in the account is calculated by multiplying the monthly levy paid to HM Revenue & Customs (HMRC) by the proportion of the employer’s pay bill paid to their workforce in England (referred to as the ‘English percentage’), plus a 10% top up on this amount from the government. These funds are then available for spending in England.
Often employers are not aware of the full range of occupations and levels covered; however, this link – http://bit.ly/2Z7K8yY – shows what standards are available and also the variety of levels available to benefit employees at different stages in their career. While lower-level 16–18 apprenticeships are important, a large range of higher-level apprenticeships are on offer which are perfect for up-skilling existing teams.
Apprentices can be of any age and do not need to be new starters. Investing in current staff through apprenticeship training can exceedingly enhance employee retention and develop the skill set within your business. For instance, the CIPP offers a three-year MSc level 7 qualification in strategic leadership that provides payroll, human resources and reward managers with the skills and knowledge to shape the future of their organisation, which can be funded through the account.
Employers can only use funds in their account to pay for apprenticeship training and assessment for apprentices who work at least 50% of their time in England and only up to the funding band maximum allowed for that apprenticeship. If the costs of the training and assessment go over the funding band maximum, employers will need to pay the difference themselves.
Account funds cannot be used to pay for other apprentice costs such as wages, travel and subsidiary expenses, work placement programmes or implementing an apprenticeship programme.
Support with apprenticeship costs
The government has introduced ‘co-investment’, which is available for non-levy employers that don’t pay the levy, but co-investment is also available for those that do pay the levy but want to spend more than is available in their levy account in any single month. The purpose of the co-investment is for the employer and government to share the cost of apprenticeship training; the intention being that if an employer makes a cash contribution it will increase their engagement and in time increase apprenticeship training.
The co-investment rate has changed for new apprenticeships starting on or after 1 April 2019, meaning that the employer will now pay 5% towards the cost of the apprenticeship training, whilst the government will pay the outstanding sum of 95%. All apprenticeships that commenced before 1 April 2019 will remain at the previous co-investment rate of 10% with the government paying 90%. The employer contribution is paid directly to the training provider.
Levy management
There are some levy paying employers that are not able to spend all the funds in their account. Conscious of this, the government will now allow employers to transfer up to 25% of the annual value of funds entering the account to other employers. These funds can be transferred to any employer, including smaller employers in their supply chain, and to apprenticeship training agencies (ATAs), to support new opportunities and widen participation in apprenticeships. Employers that have unused funds can find employers that want to receive a transfer in a number of ways:
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contact employers in their supply chain
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employers that work in their industry
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use an apprenticeship training agency
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work with regional or local partners.
The transfer of funds will be used to pay for the training and assessment cost of the apprenticeships agreed with the receiving employer. Both parties will need to agree the details of the transfer of funds such as how many apprentices, cost and which apprenticeship standard to use. Both will need to agree on a suitable payment plan and the provider must prove that the contributions have been paid as a requirement of the government paying its contributions.
When an employer has agreed a transfer to fund an apprenticeship, they are committing to fund the apprenticeship until it ends. They must ensure that they will have enough transfer allowance to cover the costs over the period of the apprenticeship. Once the apprenticeship has been approved on the apprenticeship service, they will not be able to stop the payments. Transfer payments will be deducted from their levy account first before their own apprenticeships.
Employers receiving the funds need to be aware and understand the implications that this transfer may have under state aid rules. A percentage of all funds received as a transfer may be considered as state aid and this represents the amount of co-investment they would have had to pay towards the apprenticeship if they had not received transferred funds.
Funds expiring
To prevent levy paying employers from accruing large balances in their service accounts, all unused funds from April 2019 onwards will begin to expire 24 months after they appeared in their account. So, where funds appeared in accounts in May 2017 all unused funds will expire in May 2019, and this will continue each month where the oldest unused funds in the account will expire if over 24 months old.
Funding bands
Employers need to choose the training that they would like their apprentice to receive throughout their apprenticeship. Currently there are two separate types of apprenticeship schemes to choose from and both are funded in the same way:
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Apprenticeships standards – each apprenticeship standard covers a specific occupation and sets out the core skills, knowledge and behaviours that an apprentice will need. These apprenticeships are also known as ‘Trailblazers’, developed by employer groups.
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Apprenticeships frameworks – a series of work-related vocational and professional qualifications within the workplace which are mainly classroom-based training.
At present there are thirty funding bands with the upper limit of these bands ranging from £1,500 to £27,000. Employers are expected to agree a price for their apprentice’s training and assessment knowing that the funding band sets the maximum amount that the government will contribute towards.
The upper limit of each of the funding bands is the maximum that an employer that pays the levy can use towards an individual apprenticeship from their account. If they go above this amount the levy paying employer will need to meet the costs themselves. For non-levy paying employers the upper limit band is the maximum amount that government will co-invest towards.
See the CIPP’s website for more information on using the apprenticeship levy to fund the MSc in strategic leadership.