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Apprenticeship Levy

The government has set a target of recruiting 3 million Apprentices by the year 2020. The introduction of the Apprenticeship Levy, due to start in April 2017, will support this initiative.

 

The apprenticeship levy requires all employers operating in the UK, with a pay bill over £3 million each year, to make an investment in apprenticeships. You can benefit from this investment by training apprentices.

 

You will need to pay the apprenticeship levy if you are an employer, in any sector, with a pay bill of more than £3 million each year. For the purposes of the levy, an ‘employer’ is someone who is a secondary contributor, with liability to pay Class 1 secondary National Insurance contributions (NICs) for their employees.

 

The levy will be charged at a rate of 0.5% of your annual pay bill. You will have a levy allowance of £15,000 per year to offset against the levy you must pay. This means you will only pay the levy if your pay bill exceeds £3 million in a given year.

 

You will pay the levy to HM Revenue and Customs (HMRC) through the Pay as You Earn (PAYE) process.

 

You can view the full details on the government web site by clicking here clicking here.

 

FAQ about the apprenticeship Levy

1. What is the apprenticeship levy?

2. Who will need to pay the apprenticeship levy?

3. How will the apprenticeship levy be collected?

4. How is the levy payment calculated?

5. What will employers get back from the levy?

6. What can levy funds pay for?

7. Who sets the cost of the training?

8. How will companies outside the apprenticeship levy fund apprenticeships?

9. How will training for apprentices aged 16 to 18 be funded?

10. Will there be any other Government payments?

11. What happens if an employer starts an apprentice before the changes are introduced?

 

1. What is the apprenticeship levy?

Government is introducing the AL (Apprenticeship Levy). It will replace all taxpayer funding of apprenticeships for companies of all sizes (however when the levy allowance of £15,000 per year is taken into consideration, in reality only companies with an annual wages bill of £3,000,000 will be affected). It starts from April 2017 at a rate of 0.5% of an employer’s wage bill, and will be paid through Pay As You Earn (PAYE). Back

2. Who will need to pay the apprenticeship levy?

All firms receive an offset allowance of £15,000, equivalent to 0.5% on a payroll of £3 million. Any employer with a payroll above this will be liable to pay the levy.

 

 Example 1: an employer who would pay the levy

 

   An employer with an annual pay bill of £5 million:

 

Levy sum: 0.5% x £5,000,000 = £25,000

Allowance: £25,000 – 15,000 =

£10,000 annual payment

 Example 2: an employer who would not pay the levy

 

  An employer with an annual pay bill of £2 million:

 

Levy sum: 0.5% x £2,000,000 = £10,000

Allowance: £10,000 – £15,000 =

£0 annual payment

Where companies are connected, only one £15,000 allowance can be shared between them. The division of the allowance must be decided at the beginning of the tax year. So if during the year an employer becomes connected to a company which already pays the levy, the first employer would immediately become liable to pay on their full payroll.

 

Connected companies may also pool their levy funds to pay for apprenticeship training. Back

 

3. How will the apprenticeship levy be collected?

Each month, the AL will be collected through the PAYE system, alongside Income Tax and National Insurance Contributions. Single employers with multiple PAYE schemes will only have one allowance. Back

 

4. How is the levy payment calculated?

All employers have an offset allowance of £15,000 (equal to 0.5% of £3 million). Employers with a monthly pay bill under £250,000 (equivalent to a £3m annual pay bill) will not pay the AL at all. The £15,000 is divided into 12 monthly allowances of £1,250. Where 0.5% of a month’s pay bill is higher than the £1,250 allowance, the employer will pay the AL. However, if 0.5% of the monthly pay bill is under the £1,250, the balance of the allowance that is unused will be carried to the next month. This means that some companies might pay the levy only in months where payroll was higher than usual. However if they were under the £1,250 allowance in previous months, the unused balance would be carried forward and deducted from any payment due in the higher payroll month. Back

 

5. What will employers get back from the levy?

Employers in England will be able to reclaim their AL contributions as digital vouchers to use to pay for training apprentices. This voucher system will not apply in Scotland, Wales and Northern Ireland.

 

The Government has announced that unspent funds in an employer’s digital account will expire after 18 months. So for example funds entering the account in May 2017 will expire in November 2018, unless the employer uses them. The digital account works on a ‘first-in, first out’ basis, so payments automatically draw from the funds which entered the account first.

 

Employers who pay the AL will also receive a 10% top-up from Government to their total monthly contributions in England. So for every £1 an employer pays in, they can draw down £1.10 to spend on apprenticeship training through their digital account.

 

Connected companies can pool their funds into a single levy to pay for apprenticeship training. But employers not connected to the group – for example separate companies in the supply chain – are not able to join the pool. Back

 

6. What can levy funds pay for?

Funds in the digital account can pay for apprenticeship training and assessment (with an approved provider and assessment organisation, up to its funding band maximum). These funds cannot pay for apprentices’ wages, travel or subsidiary costs, managerial costs, work placements, traineeships, or the costs of setting up an apprenticeship programme. Back

 

7. Who sets the cost of the training?

All employers must choose a training provider and negotiate the cost of the training.

 

Government funding caps will be set on different qualifications for all employers. This is the upper limit to which Government funding can be used to pay for an apprentice’s training. The Government will announce provisional funding cap levels in June and confirm these in October.

 

Government funding, either through the AL digital account or co-investment for non-levy payers(detailed below), cannot be used to pay for apprenticeship costs above the funding cap.

 

Example 3: Funding Caps on apprenticeship costs – apprenticeship levy payers

 

Employer A (who pays the AL) trains an apprentice in Y occupation. The Government has set the funding cap for this training at £5k per year, but the employer negotiates a cost of £4k with the provider. The cost is within the funding band limit, so £4k will be deducted from the employer’s digital account over the lifetime of the apprenticeship.

 

OR

 

Employer B (who pays the AL) trains an apprentice in Y occupation, which is again set a funding cap of £5k. The price negotiated with the training provider is £6k, so over the funding cap. This means the £5k will be deducted from the employer’s digital account over the lifetime of the apprenticeship, and the employer will be responsible for paying the remaining £1k.

 

If apprentice training costs are above the funding cap, the employer cannot use apprenticeship levy funds to make up the difference. They must fund this additional cost separately.

 

Where a company has used all the funds in its digital account, any further training will be funded through the ‘co-investment’ model explained below. However, Government co-investment cannot be used to cover training costs above the funding cap. Back

 

8. How will companies outside the apprenticeship levy fund apprenticeships?

Employers who do not pay the AL will not need to use the digital voucher to pay for apprenticeship training and assessment until at least 2018. They will need to choose a training provider from the registered list, negotiate the cost of the training and adhere to the funding caps for different qualifications, in the same way as larger firms that pay the AL.

 

Employers that do not pay the levy must contribute “a small proportion” of funding towards the cost of their apprenticeship training. The employer will make an initial payment to the training provider,to meet the provider’s payment schedule. The Government will then pay its share through ‘co-investment’, up to the funding cap limit for that apprenticeship.

 

The co-investment rate will be published as provisional in June and confirmed in October. The examples below are modelled on a co-investment by Government of £2 for every £1 paid by the employer; however the actual rates could be more favourable.

 

All apprenticeship funding will come from the AL pot and a proportion of this will be allocated to support apprentices in non-levy paying employers.

 

Example 4: Co-investment funding – employers who do not pay the apprenticeship levy

 

Employer A (who does not pay the AL) trains an apprentice in Y 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.

 

(NB these amounts are illustrative and the actual co-investment rate will be announced by Government in June.)

 

OR

 

Employer B (who does not pay the AL) trains an apprentice in Y occupation, which is set a funding cap of £6k. The price negotiated with the training provider is £7k, so over the funding cap.

 

The cost is above the funding cap limit, so 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. Back

 

9. How will training for apprentices aged 16 to 18 be funded?

The Government has announced that employers will receive payment via their training provider to help meet the additional costs associated with employing young apprentices. The rates will be announced provisionally in June and confirmed in October. Back

 

10. Will there be any other Government payments?

The same additional payment (as for a 16-18 year old apprentice) will be made to employers who take on disadvantaged individuals aged 19-24 as apprentices. So for example those with an Education and Healthcare Plan provided by the Local Authority, or who have been in Local Authority care. There will also be additional payments for apprentices with additional learning needs. All these payments will come via the training provider.

 

For apprentices who do not have the required minimum standard in Maths and English, the Government will pay providers directly for the courses they offer in these subjects. Back

 

11. What happens if an employer starts an apprentice before the changes are introduced?

Employers that start an apprentice before April 2017 will receive funding under the current system, and that funding will continue for the duration of the apprenticeship.