We reported last year (Apprenticeship levy update) on the government’s plans to introduce an apprenticeship levy of 0.5% for all employers with a total annual payroll bill in excess of £3m. The start date for the new scheme, (6 April 2017), is almost upon us which has prompted the government to publish guidance on how the levy will actually work in practice.
A summary of how this guidance will affect apprenticeship funding in England is provided below. Devolved authorities will continue to manage their own apprenticeship programs, so the way in which funding is spent on apprenticeship programs will differ in Scotland, Wales and Northern Ireland.
From 6 April, all levy-paying employers will need to inform HMRC how much apprenticeship levy they owe each month. This will be collected through the Pay As You Earn scheme (PAYE) in the same way that Income Tax and National Insurance contributions are collected. Employers which are not connected to another company (see below) also get an apprenticeship levy allowance of £15,000 each year reducing any payments owed by a commensurate amount each year.
Once an employer declares to HMRC how much levy is due, it will be able to access funding to provide apprenticeships through an “Apprenticeship Service Account”. The service is currently undergoing testing but it is hoped that levy-paying employers will be able to register sometime this month.
All employers, not just those subject to the levy will be able to use the service account to:
- Select an apprenticeship framework or standard;
- Select training providers to deliver apprenticeship training;
- Choose the organisation that will assess apprentices; and
- Post any apprenticeship vacancies
In addition, levy-paying employers will also be able to use account to:
- Pay for apprenticeship training and assessment;
- Set prices agreed with training providers; and
- Stop or pause payments (for instance, where an apprentice stops training, or takes a break from training).
Funds cannot be used to pay wages, licences to practice, travel costs or the costs of setting up an apprenticeship program as available funds must strictly be used to pay for training and assessment costs associated with approved providers.
Levy-paying employers will receive a 10% “top-up” of funds for spending on apprenticeship training and will add this top-up on a monthly basis at the same time funds enter the Apprenticeship Service Account. So for every £1 spent on apprenticeship training, the government will contribute an additional 10p.
One feature of the Apprenticeship Service Account which has changed since the last time we blogged on this topic is that funds in the account will need to be spent within 24 months (rather than 18 months as previously reported) otherwise they expire.
The government has also confirmed that it will automatically use funds that entered the account first and will also alert account holders “in good time” when funds are due to expire.
In the first year, employers will only be able to use funds in their account to pay for their own employees. However one interesting point arising from the guidance is that the government will allow up to 10% of the annual value of funds entering an account to be used for apprenticeship training of other employer’s apprentices (for example, by a company in their supply chain).
Non levy-paying employers do not need to use the Apprenticeship Service Account until 2018, however there are significant benefits for them if they choose to use the new funding system before 2018. Non levy-paying employers do not receive the 10% top-up but the government will pay up to 90% of the eligible training costs meaning the employer will only have to pay the remaining 10%
Lastly, the levy will not affect the way training is funded for apprentices who started an apprenticeship program before 1 May 2017. These will still be funded under the terms and conditions that were in place at the time the apprenticeship began.
Now that the finer details have been published, businesses can explore how their organisation will get the most out of their contributions, either by attracting new apprentices, training existing staff to acquire new skills, or a mixture of both. We will keep you updated on any further guidance as and when it becomes available.