Introduction

The Apprenticeship Levy (AL), which was initially introduced in the 2015 Autumn Statement, is set to come into force on 6 April 2017. The start date for the new apprenticeship funding system will be 1 May 2017 so any apprenticeships starting from this date will be funded according to the rules which are highlighted below.

The Government has introduced the AL to replace all taxpayer funding of apprenticeships for businesses of all sizes. It is expected to raise over £2.5bn in its first year and the aspiration is for three million apprentices to be trained or in training by 2020.

Paying the AL

The most controversial part of the AL is the fact that the new apprenticeship training programmes will be paid for via a levy on larger employers. From April 2017, all employers with a gross annual salary bill of over £3 million will pay the AL at a rate of 0.5% of the gross salary bill. All employers will receive an allowance of £15,000 per year to offset against the AL (equivalent to 0.5% levy on £3 million).

As employers’ salary bills vary from month to month, it is more appropriate to talk about the figures as monthly, rather than annual, values. Therefore the AL only applies to employers with a gross monthly salary bill of £250,000 and the monthly allowance is set at £1,250. See examples A and B for further details.

Example A

The total monthly salary bill of Employer A is £500,000 per month, therefore the total amount to be paid into the levy is:

• Levy: 0.5% of £500,000 = 2,500.00

• Allowance: £2,500 - £1,250 = £1,250 payment for that month

Example B

The total monthly salary bill of Employer B is £100,000 per month, therefore the total amount to be paid into the levy is:

• Levy: 0.5% of £100,000 = 500.00

• Allowance: £500 - £1,250 = £0 monthly payment.

Some employers may have to pay the AL on some months, and not on others as the salary bill fluctuates above and below the monthly salary limit of £250,000. The employer will be able to offset AL payments made on months when the employer incurred the AL with months where no AL payment was required (as documented in Example C). Given the nature of construction work, this may affect more employers in this industry.

Example C

The total monthly salary bill of Employer C is £280,000 in July but £220,000 in August, the total amount paid to the AL is:

• July Levy: 0.5% of £280,000 = £1,400

• July Allowance: £1,400 - £1,250 = £150

• August Levy: 0.5% of £220,000 = £1,100

• August Allowance: £1,100 - £1,250 = -£150 i.e. the Government will give Employer C a rebate of the July AL payment from the Digital Account.

For connected companies, the £1,250 monthly allowance must be shared between them. Any split between the companies must be declared to HMRC at the start of the tax year.

The AL will be paid through the PAYE system in addition to income tax and national insurance contributions.

Digital Accounts

The funds paid by Employers pursuant to the AL will be paid into a Digital Account which will go “live” just before the end of May 2017. The Government will provide a 10% top-up to the contributions made by all employers who pay AL.

The AL funds may only be spent on apprenticeship training and assessments with Approved Training Providers. The training may be used for an apprentice who wants to learn a new skill, or enhance his or her current skill. The AL funds cannot be spent on wages, travel, administration and management costs etc.

The Government has also set funding restrictions, which set out how much can be spent on certain types of training. There are fifteen funding bands in total ranging from £1,500 to £27,000. If the cost of the training is more expensive than the amount permitted, Employers will have to top up the difference themselves, as highlighted in Examples D and E.

Example D

• Employer E (pays AL) wants to train an apprentice in Level 3 Building Control with an approved training provider for which the maximum funding band value is £9,000.

• The Employer negotiates to pay £8,000 for the training.

• Therefore, the Employer can obtain the full value of the training from its Digital Account.

Example E

• Employer F (pays AL) wants to train an apprentice in Level 3 Building Control with an approved training provider for which the maximum funding band value is £9,000.

• The Employer however negotiates to pay £12,000 for the training.

• Therefore, the Employer can obtain £9,000 from the Digital Account but must pay the difference of £3,000 itself.

In order to aid supply chains, which is particularly relevant in the construction industry, employers will be able to transfer up to 10% of the levy funds in their digital account each year to a different employer.

The Government announced that funds will only be made available 24 months after the instalment into the Digital Account. Therefore if an AL contribution paid in September 2017 must be used by August 2019. The Digital Account works on a “first-in first out basis” so payments for training and assessments are drawn from the earliest funds which entered the account.

Approved Training Providers

The Government has set up the Institute of Apprenticeships, which will work independently from the Government, with the aim of supporting the delivery of high quality apprenticeship standards and assessment plans. The Institute will work alongside Ofsted to ensure that standards are rigorous and consistent throughout the country. Any provider with a rating of “inadequate” will be removed from the register of Approved Training Providers.

Relationship between the AL and the levy paid to the Construction Industry Training Board (CITB)

Of course, the construction industry is one of the few sectors to have a training board, the CITB, with the power to collect annual levy payments (albeit the money raised from the levy is invested in slightly different causes). The CITB has agreed a temporary transition package with the industry that its members will pay both AL and the CITB levy for the first year only. The mandate of the CITB is due for renewal in March 2018 and CITB has set up a Levy Working Party to redefine the role CITB can play in this area in light of the AL.

Companies which do not pay the AL

Smaller employers with gross salary bills of less than £250,000 per month will not initially have access to the Digital Account. Instead training will be provided by a system of co-investment. In order to obtain governmental support for the cost of training, the Employer must use an Approved Training Provider, negotiate the training cost, adhere to the funding restriction and pay a co-investment fee of 10% of the training cost. The government, via the National Apprenticeship Service pays the balance.

Example F

• Employer G has a gross salary bill of £200,000 per month so it does not pay the AL.

• Employer G wants an apprentice to undergo in Level 3 Building Control with an approved training provider for which the maximum funding band value is £9,000.

• The Employer negotiates to pay £8,000 for the training.

• Therefore, the Employer pays £800 and the Government co-investment is £7,200.

If the cost of the training is above the funding restriction, the Employer has to pay the difference itself (see Example G).

Example G

• Employer H has a gross salary bill of £200,000 per month so it does not pay the AL.

• Employer H wants an apprentice to undergo training in Level 3 Building Control with an approved training provider for which the maximum funding band value is £9,000.

• The Employer negotiates to pay £12,000 for the training.

• Therefore, the Employer pays £3,900 (£900 + £3,000) and the Government co-investment is £8,100.

Commentary

The new apprenticeship funding rules highlight the governmental objective to ensure apprentices in all industries throughout the country have access to high quality training programmes, which deliver professional and technical education. Apprenticeship programmes are not new in the construction industry. However, due to the skills shortage affecting the delivery of construction projects and the critical need to invest in infrastructure and construction across the UK, the availability of additional funding for the training of apprentices, alongside the introduction of other collaborative measures between educational system, government and the construction industry, is a positive step.