APPRENTICESHIP FUNDING IS CHANGING
In April 2017 the way the Government funds Apprenticeships in England is changing.
The changes will impact all businesses, large and small, as Apprenticeships will have to be paid for either through an employer levy or co-investment scheme. The information below explains how the levy is calculated and whether it will apply to your business.
Whether you will pay the levy or not, our aim is to help you to understand what the changes mean to your business and how to maximise the benefits you will recoup from your investment.
Moving forward all Apprenticeships will be placed within a funding band, and allocated a funding cap. These will determine the maximum amount of funding that can be used towards training and assessment costs, over the duration of each Apprenticeship. The same funding bands will apply to all employers paying for Apprenticeship training.
The Government will be making further announcements about levy implementations throughout the year. However, should you wish to speak to us about the changes to Apprenticeship funding or any other training enquiries, please contact us on 0845 155 0043 (press 4), email firstname.lastname@example.org.
WHAT IS THE APPRENTICESHIP LEVY?
The Apprenticeship levy is a new payroll tax on UK employers to fund Apprenticeships, which will be introduced in April 2017.
The levy will be paid through PAYE and is set at 0.5% of your entire pay bill. However, there is an ‘allowance’ of £15,000 per tax year to offset against your levy liability. This means that you only make levy payments on your pay bill in excess of £3 million per tax year.
The levy will be a monthly deduction, taken in any month where your pay bill is over £250,000. If your overall pay bill in that tax year is below £3 million, any monthly levy deductions will be reimbursed.
Your pay bill will be based on the total amount of earnings subject to Class 1 secondary national insurance contributions (NICs). Although earnings below the Class 1 secondary threshold are not counted when calculating an employer’s NIC, they will be included for the purposes of calculating the amount of levy the employer needs to pay.
Earnings include any remuneration or profit coming from employment of all staff (including directors), such as wages, bonuses, commissions, and pension contributions that you pay Class 1 secondary employers NICs on.
The levy will not be charged on other payments such as benefits in kind and reimbursed expenses.
All levy payments will be allowable for Corporation Tax.
Employers in England who pay the levy and participate in Apprenticeship programmes will receive more than they pay into the levy, through a monthly 10% top-up from the Government.
WILL YOU PAY THE LEVY?
All employers are in scope to pay the levy on your entire pay bill at a rate of 0.5%. However, you will have a levy allowance to offset against this. The levy allowance is worth £15,000 for each tax year. This means the levy is only payable on pay bills over £3 million (because 0.5% x £3 million = £15,000).
Example levy calculations
An employer who would pay the levy
Employer of 250 employees, with an average gross salary of £20,000
250 x £20,000 = £5,000,000
0.5% x £5,000,000 = £25,000
Minus levy allowance:
£25,000 - £15,000
£10,000 annual levy payment
An employer who would not have to pay the levy
Employer of 100 employees, with an average gross salary of £20,000
100 x £20,000 = £2,000,000
0.5% x £2,000.000 = £10,000
Minus levy allowance:
£10,000 - £15,000
£0 annual levy payment
LEVY PAYING EMPLOYERS
Paying the Levy
If you have calculated that you will pay the levy, your payroll department will calculate, report and pay your levy to HMRC through the PAYE process alongside National Insurance and Income Tax from April 2017.
Single employers with multiple PAYE schemes should add these together when making their levy calculations.
Employers who are in connected ownership or control (for example groups of companies or joint ventures) will share one levy allowance.
Using your levy payments
Levy payments can be used to pay for training and assessment for Apprenticeships in England from April 2017, through an approved training provider. This does not only apply for new employees. Existing staff could be eligible for an Apprenticeship, as long as it is relevant to their role and is the most appropriate way of developing their skills. For more information please call us on 0845 155 043 (press 4) or email email@example.com.
Levy funds cannot be used for: wages, managerial costs, traineeships, work placement programmes, set-up costs, travel and subsidiary costs or licences to practise.
From January 2017, you will be able to register with a new Digital Apprenticeship Service (DAS) and create a digital account.
From April 2017 you can use your digital account to access the funding to pay for Apprenticeship training and assessment.
Getting out more than you put in
The Government will apply a 10% top-up on a monthly basis to the levy funds you have for spending on Apprenticeship training, at the same time the funds enter your digital account. This means for every £1 that enters your digital account you get £1.10 to spend on Apprenticeship training.
Employer has £12,000 annually entering
their levy account
Monthly levy payment = £1,000
Monthly top up:
10% x £1,000 = £100
Monthly account increase:
£1,000 + £100 = £1,100
£13,200 annually to spend on Apprenticeships
Expiry of funds in your digital account
Funds will expire 18 months after they enter your digital account unless you spend them on Apprenticeship training. This will also apply to any top-ups in your digital account. The account will work on a first in, first out basis, so whenever a payment is taken from your digital account it will automatically use the funds that entered your account first. This will minimise the amount of expired funds.
Buying training if you don’t have enough
in your digital account
Employers who pay the levy, but have either used all their funds or have an insufficient amount to fund the number of apprentices they wish to train, will be expected to make a contribution to the extra cost of training and to pay this directly to the provider.
The Government will pay the rest, up to the maximum amount of funding available for that Apprenticeship. This is called a ‘co-investment’ scheme (see Co-Investment: Non-Levy Paying Employers section).
The exact amount employers will have to pay will be announced by the Government later this year.
Directing funds in a digital account to another employer
In the first year of the levy, you will only be able to use the funds in your digital account to pay for Apprenticeship training and assessment for your own employees.
The Government is aware, however, that some employers will want to use funds in their digital account to pay for Apprenticeship training of other employer’s apprentices, for example, someone in their supply chain. Further information on this will be provided by the Government later this year.
Pooling funds in a levy account with other employers
If you are in a group of companies that are connected (eg. groups of companies or joint ventures), for the purposes of paying the levy, your group will be able to collect their funds together into one digital account. You can do this by registering to have multiple PAYE schemes attached to a single digital account. Employers that are not connected will not be able to pool funds in a digital account.
CO-INVESTMENT: NON-LEVY PAYING EMPLOYERS
Employers that don’t pay the levy
Employers with a pay-bill less than £3 million per year won’t pay the levy and won’t need to use the Digital Apprenticeship Service (DAS) to pay for Apprenticeship training and assessment until at least 2018.
However, from April 2017 there will be a requirement for all employers to co-invest and make a financial contribution towards the cost of any Apprenticeship training and assessment within your organisation.
This contribution will be based on Government funding bands and will be greater than the employer contribution rates currently charged. The Government will pay the rest, up to the maximum amount of funding available for that Apprenticeship.
What happens when a price has been agreed?
After a price for the training and assessment has been agreed, you will be expected to pay your contribution towards the costs directly to the training provider.
If you negotiate a price with a provider that is more than the maximum allowed by the funding band, then you must pay the difference in full. You will not get Government support towards these costs.
More details will be available on the proposed rates of Government support in June 2016 and confirmed in October 2016.
These co-investment amounts are illustrative and the actual rates will be announced by Government later this year.
(who does not pay the levy) trains an
apprentice in X occupation. The funding
cap for this training is £4k per year, but
the employer negotiates a cost of £3k
with the provider.
The cost is within the funding band
limit, so the £3k will be made up of an
employer contribution of £1k and a
Government co-investment of £2k.
(who does not pay the levy) trains an
apprentice in X occupation, which is set a
funding cap of £6k. The price negotiated
with the training provider is £7k, so over
the funding cap.
The employer will pay £2k of the £6k of
training within the funding-cap limit, with
a Government co-investment of £4k. The
employer is responsible for the remaining
£1k over the funding-cap limit.
ADDITIONAL INFORMATION – ALL EMPLOYERS
Apprenticeship training started before April 2017
Apprentices who have been accepted on to an Apprenticeship programme before April 2017 will be funded for the full duration of the Apprenticeship under the terms and conditions that were in place at the time the Apprenticeship started. If you begin to pay the Apprenticeship levy you will not be able to use the funds in your digital account to pay for Apprenticeships that have already started.
Extra support for employing 16 to 18 year olds
When you take on an apprentice who is between 16 and 18 years old at the start of their Apprenticeship, you will receive a payment to help meet the extra costs of employing them. This will be paid to you through the training provider.
Funding for additional needs
To help meet extra costs, you will receive the same payment as you do when you recruit a 16 to 18 year old apprentice, if you recruit:
an apprentice who is between 19 and 24 years old and who has an Education and Health and Care Plan provided by the local authority.
a 19 to 24 year old who has been in the care of the local authority
If you recruit an apprentice with additional learning needs, such as dyslexia, other learning difficulties or disabilities, the Government will make a payment directly to us to help with the extra costs of supporting the apprentice’s learning.
Funding for English and maths training
Apprentices have to meet a minimum standard in both English and maths up to Level 2. If your apprentices do not already have these, they will need to undertake an English and/or maths course. The Government will pay providers directly for the English and maths courses they deliver, so you won’t be asked to pay us for it directly.
National Insurance breaks for employers
of apprentices under 25
From April 2016 employers of apprentices under the age of 25 will no longer be required to pay secondary Class 1 (employer) National Insurance contributions (NICs) on earnings up to the Upper Earnings Limit (currently £827.00 per week or £43,000 per year) for those employees. This also includes people already on an Apprenticeship as long as they are still under 25.
WHAT SHOULD YOU DO NOW?
Until the 5th April 2017, if you already employ apprentices there is little you need to do now other than start to budget for the impending funding changes, and/or to take advantage of current funding models while they still exist.
If you do not currently take on apprentices and you will be affected by the levy, we would advise that you start to consider setting up a pilot Apprenticeship scheme, this year, so you are in the best position to make use of your levy funds from 2017.
If you won’t be affected by the levy but are considering taking on an apprentice for the first time, we would encourage you to contact our Skills Advisers, who will be happy to discuss this with you.
Choosing Central Sussex College
Apprenticeships are proven to increase productivity, staff motivation and retention. Therefore, it makes good business sense to sign up your new and existing staff (if working or progressing into new roles) onto an appropriate Apprenticeship training programme.
As one of the largest Apprenticeship providers in the South East, Central Sussex College manages over 700 apprentices across a diverse range of industries.
We are here to help support you and help you manage your levy through the Government’s Digital Apprenticeship Service, and to help you maximise the benefits of your investment.
So, choose us as your Apprenticeship partner and let us arrange and deliver training and assessment for all of your apprentices. Call today to talk to one of our Skills Advisers on 0845 155 0043 (press 4) or email
Download our booklet explaining the changes
Funding reform booklet
If you would like further information on the levy please visit: