Despite calls from various business groups, including the CBI, to delay implementation the government recently confirmed that the apprenticeship levy will come into effect across the UK on 6 April 2017. Earlier this month the government published updated guidance on how the levy will work with further guidance expected in October and December.
The levy will apply to all UK employers (in both the private and public sectors) who have an annual pay bill of more than £3 million. An employer is defined as someone who has responsibility for paying Class 1 secondary National Insurance Contributions for its employees. The levy will be charged at 0.5% of the employer’s pay bill for a tax year, reduced by an annual levy allowance of £15,000. The levy will be paid to HMRC through PAYE and the first submission in which an employer may declare that it will pay the levy is May 2017 in respect of its April payroll. It is estimated that 2% of employers will be liable, potentially raising up to £3 billion annually by 2019-20.
The levy, which is designed to help fund the costs of apprenticeship training and assessment, will also enable employers to access funding for apprenticeships through a new digital apprenticeship service account, which can be used to pay for training and assessment for apprentices in England. The digital system will initially only be available to those employers that pay the levy but all employers will be able to use the system from 2020. Separate arrangements will be in place for Scotland, Wales and Northern Ireland and Skills Development Scotland has stated that Scotland has no plans to adopt the digital system.
Apprentices who were accepted on an apprenticeship programme before May 2017 will be funded for the full duration of the apprenticeship under the terms and conditions in place at the time the apprenticeship started. A new funding system will be in place from May 2017.
Under the new funding system employers in England who pay the levy will be able to spend funding through the digital system on apprenticeship training and end-point assessment. Participating employers in England will also receive a top-up payment from the government equating to 10% of their monthly apprenticeship levy contributions. The funding can only be spent through an approved provider or assessor and certain restrictions are placed on what the levy can be spent on with wages, travel, traineeships and work placement programmes excluded. The scope of use of the funding created by the levy has been criticised as being too narrowly defined, by only covering one type of training, with employers restricted to reclaiming off-the-job costs. The government has said that further information about exactly what it will cover will be published in October 2016.
Whilst employers who are not required to pay the levy will not have immediate access to the digital system they will still be able to receive government funding towards the costs of apprenticeships through “co-investment”, whereby the employer will make a contribution towards the costs, with the government paying the remainder of the bill. The government is seeking views on proposals that its pays 90% and employers pay 10%.
Two training boards currently exist which operate their own levies: the Construction Industry Training Board (CITB) and the Engineering Construction Industry Training Board (ECITB). Employers who contribute to such levies will still be required to pay the new apprenticeship levy and both boards are currently in consultation with their member companies on how the apprenticeship levy will alter existing levy arrangements.
Whilst it appears the government won’t be deterred from bringing the levy into effect from April next year, it is seeking views on various elements including levels of funding and government support. Employers can also make use of an indicative online tool provided by the government to estimate how much levy they might pay, begin planning training requirements and how to use funds to buy training. Employers have until 5 September to feedback on the government plans and can do so here.
A separate consultation was launched on 13 July to seek views on how the levy can enhance productivity and economy growth in Scotland. The consultation closes on 26 August and you can respond here.