March 08 2017

The Apprenticeship Levy

David Williams, Director of Global Corporate Engagement, shares his thoughts on the new Apprenticeship Levy being introduced by the government to finance a new wave of apprenticeships.

In April the government is to introduce a new ‘payroll tax’ in the form of an Apprenticeship Levy. Those businesses with an annual payroll bill in excess of £3m will see their payroll costs increase next year by 0.5%.

This can amount to a substantial extra cost for any company affected, across the public, private and not-for-profit sectors.

Back in 2015, the Conservative Party committed to creating three million new apprenticeships by 2020 in their general election manifesto. The development and delivery of degree-level apprenticeships is seen as a key part of this policy reform and to fund this initiative we have the new Apprenticeship Levy.

The good news is the incremental tax raised on the total payroll bill will be returned to the employer through a digital account, along with an uplift of 10% from the government. If there is a catch then it is that the employer can only spend the money on the delivery of apprenticeship-based training offered through an approved training provider. And if the funds are not used after two years then it cannot be recouped. The funding only applies to apprenticeships in England.

The positive view is that many Learning & Development managers will now find themselves with a budget that the FD cannot take away.

The government’s recent industrial strategy green paper includes commitments to technical education, in large part a response to Brexit but also to address the productivity gap and the marked geographic and demographic divides across the UK. The emphasis has also notably been on opportunity and social mobility as a result of apprenticeship training.

Funding (or the cost) for apprenticeships can vary considerably. Lower level qualifications are around £2,000 per qualification with degree apprenticeships around £27,000. Others fit somewhere in between.

Non-levy paying employers will have to make a small contribution towards training an apprentice. Current thinking is that the government will pay 90% towards the cost of training and employers will pay the remaining 10%.

Levy examples

Employer 1

Employer of 100 employees, each with a gross salary of £20,000:
Paybill: 100 x £20,000 = £2,000,000
Levy sum: 0.5% x £2,000,000 = £10,000
Allowance: £10,000 – £15,000 = £0 annual levy payment (total amount of the levy sum is less than the £15,000 allowance); employer will receive an levy allowance for apprenticeship training.

Employer 2

Employer of 250 employees, each with a gross salary of £20,000:
Paybill: 250 x £20,000 = £5,000,000
Levy sum: 0.5% x £5,000,000 = £25,000
Allowance: £25,000 – £15,000 = £10,000 annual levy payment

Employer 3

Large Employer
Paybill: £100 million
Levy sum = 0.5% x £100,000,000 = £500,000
Allowance £5,000,000 – £15,000 = £485,000 annual levy payment, paid monthly through their digital account.

The levy will not affect the way an employer funds training for apprentices who started an apprenticeship programme before May 2017. Companies will need to carry on funding training for these apprentices under the terms and conditions that were in place at the time the apprenticeship started.

What do businesses need to do now?

Businesses need to start planning now about where the skills gaps are and what their future needs are going to be; then mapping these gaps to qualifying apprenticeship qualifications or developing new ones as part of a joint trailblazer group. They also need to plan who is eligible; whilst existing staff can become an apprentice the individual has to have been a resident in the UK for a minimum of three years to qualify.

At Middlesex University we are already seeing an interesting change in businesses’ views on graduate programmes. The complex rules of the Apprentice Levy allow funding for vocational courses or qualifications linked to a job role (even at degree level). A business with an existing Workforce Development Programme can be funded through the Apprenticeship Levy, provided the employee will be learning new skills/knowledge, the apprenticeship is relevant to their role and the qualification has been approved by SFA.

New master’s-level apprenticeships (Level 7) are currently under development and are likely to be of particular interest to employers because of the proven impact of work-based study at this level on performance and productivity.

Higher and degree apprenticeships do and will exist in parallel; the key difference is that degree apprenticeships result in the apprentice receiving a bachelor’s or master’s degree upon completion.  With significant funding – by 2020 this will be double the level in 2010 – available, degree apprenticeships are a potential new income stream for universities. With the levy funding available soon, a significant growth in numbers is predicted as employers look to spend their vouchers.

A new Institute for Apprenticeships (I4A) has been established to act as an independent body responsible for approving standards and assessment plans.

At the moment the actual role of QAA in assuring the quality of degree apprenticeships remains unclear.  But guidance for trailblazers states that “degree apprenticeships are subject to the quality assurance requirements of QAA.”

What is an apprenticeship?

An apprenticeship is a genuine job with an accompanying skills development programme. Through their apprenticeship, apprentices gain the technical knowledge, practical experience and wider skills they need for their immediate job and future career.

  • The apprentice must be employed in a real job; they may be an existing employee or a new hire
  • The apprentice must work towards achieving an approved apprenticeship standard
  • The apprenticeship training must last at least 12 months
  • The apprentice must spend at least 20% of their time on relevant off-the-job training

Employing an apprentice is very simple. The National Apprenticeship Service can provide all the information an employer needs to know in order to employ an apprentice.

Support for employers

Through the online apprenticeship service all employers will be able to:

  • Select an apprenticeship standard in an area you have training needs/gap
  • Choose the training provider or providers you want to deliver the training
  • Choose the organisation that will assess your apprentices
  • Post apprenticeship vacancies

If you are an employer who pays the levy, you can also use the apprenticeship service to:

  • Set the price you’ve agreed with your training provider
  • Pay for apprenticeship training and assessment
  • Tell Skills Funding Agency to stop or pause payments (for example, if your apprentice stops their training, your apprentice takes a break from training or you haven’t received the service you agreed with the provider)
  • Separate arrangements will be in place in Scotland, Wales and Northern Ireland.

In summary

  • The apprenticeship levy is to fund an increase in the number and quality of apprenticeships
  • It will affect businesses with a payroll bill of over £3 million (roughly 2% of businesses)
  • Each qualifying business will pay 0.5% of their employee payroll into the levy pot
  • Each business will receive up to £15,000 against the cost of training new apprentices or developing existing staff on an approved programme
  • Masters (Level 7) Apprentice programmes are in development.

You can find more information on how the Apprentice Levy will work on the government’s apprenticeship pages.

Find out more about Degree Apprenticeships at Middlesex University

Contact: Corporate Engagement, Middlesex University
Telephone: 020 8411 5050
Email: Corporate@mdx.ac.uk
Twitter: @corporateMU

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