Further details about the controversial apprenticeship levy, expected to be in force from April 2017, have been published.

Following our previous article on the new apprenticeship levy, the House of Commons Library has now published a briefing paper including details on what the levy is, how it will work and what level of support is available for employers.

What is the apprenticeship levy?

The levy is essentially a new tax to be introduced in April 2017, the purpose of which is to fund an increase in the number and quality of apprenticeships.

The levy will apply to all UK employers in both the private and public sectors, regardless of whether or not they have apprentices. It will be payable on annual pay bills of more than £3 million.

For those employers within the construction and engineering sector who already pay into an existing levy scheme, a consultation is expected to take place on whether the existing arrangements will be affected when the new apprenticeship levy comes into force.

How will it work?

The levy will be charged at a rate of 0.5% of an employer's pay bill. Levy payments will be collected monthly by HMRC though PAYE alongside tax and National Insurance.

Employers will have a fixed annual allowance of £15,000 to offset against their levy payment. Employers who operate multiple payrolls will only be able to claim one allowance for the levy.

Employers' funding for apprenticeship training in England will then be made available via a new Digital Apprenticeship Service account. The government will apply a 10% top-up to monthly funds entering levy paying employer's digital accounts.

Employers can then use the funds in their account to pay for training, assessment and certification for apprenticeships. This will be subject to a cap depending on the level and type of apprenticeship.

Employers will not, however, be able to use the funding to cover all the costs associated with taking on an apprentice, such as overheads, supervision costs and apprentices' wages.

Employers may have to contribute additional funds where the cost of the training they wish to buy is greater than the funding cap for a particular apprenticeship or where they have spent all of their levy contribution and all of their top-up and wish to spend more on additional apprenticeship training.

What support will be available?

The Digital Apprenticeship Service will also support employers to:

  • identify a training provider(s) to deliver training (the funding can only be spent on an approved provider)
  • chose an apprenticeship training course; and
  • find a candidate by posting apprenticeship vacancies.

The intention is that the main functions of this service will be in place by April 2017.

In addition a new independent body, the Institute for Apprenticeships, is being set up to regulate the quality of apprenticeships. The Institute will be able to advise on setting funding caps, approving apprenticeship standards and assessments plans. Again, the intention is that it will be fully operational by April 2017.