The Apprenticeship Levy…what you need to know

Why now?

The Government’s objective is to assist in correcting two perceived market failures in the UK economy; firstly productivity stubbornly lags other developed economies and, secondly, research suggests that UK employers are failing to invest in training.

The Apprenticeship Levy is one of a broad range of measures designed to increase both the quality and quantity of training available. On face value, the concept is attractive but the devil is in the detail and will the benefits be delivered?

England, Wales, Scotland and Northern Ireland

We focus on developments in respect of England, but one of the complexities with the Apprenticeship Levy is that Education and Training is a devolved policy and the relevant authorities of each UK nation will develop their own apprenticeship policies and programmes. National negotiations and lobbying are underway to determine funding allocations and how apprenticeships will be delivered. Scotland recently issued a consultation document.

It is strongly rumoured that levy contributions will be allocated according to the address of payroll employees rather than the Barnett formula. The employee address approach better reflects the base of contributing employers and could be based on the addresses supplied in Real-Time Information payroll returns. However, there is concern amongst some employers that they may lose out if they are unable to properly utilise levy funds or be disadvantaged by complexity if they have to operate different processes.

Employer contributions

The levy will be 0.5% of the payroll and draft legislation shows this will be based on the definition of earnings for the purposes of liability to Employer Class 1 NICs. Recovery of levy amounts from employees is specifically prohibited within the draft legislation.

Employers with a payroll bill of more than £3m will be liable to pay the levy, but a £15,000 employer allowance is available to set off against the levy liability. Broadly speaking this means no levy will be due where the payroll bill is exactly £3m but a charge will arise in respect of amounts exceeding £3m. The Government will top up the funding by 10% for apprenticeships in England.

Training and funding limits

Apprenticeship standards will define the core principles of quality for an apprenticeship, setting out the competence needed in the role in respect of Knowledge, Skills and Behaviour. When a standard has been developed it will be possible to recruit apprentices to participate in the programme and it is anticipated that training will be available up to degree level.

Funding bands will be introduced to limit the amount of employer levy funds that can be spent on training for a single apprentice. Apprenticeships that can demonstrate an enhanced standard are likely to be able to attract more funding per apprentice.

Training providers

One opportunity under the new scheme is the opportunity to become a training provider by registering with the Skills Funding Agency (SFA). By offering apprenticeship training there is the opportunity to benefit from levy funds directly and the associated public funding that will subsidise apprenticeships for non-levy paying firms. Employers currently have to pay a third of training costs with the SFA but there are reports that employers may be required to fund just 10% of the cost.

Existing employees

It is understood that current employees will be able to enrol in apprenticeships. There is the opportunity to offer training and development to current employees and improve the skills of the workforce. It is understood that training will also be allowed for lesser qualifications than currently held so that those undergoing retraining will not be disadvantaged.

Directing and pooling levy funds

It is recognised that some employers will pay the levy but, due to the nature of their business, will be unable to offer suitable apprenticeships. Proposals have been put forward for employers to direct funds in their levy account to other employers who can utilise the fund. It is thought that this could offer opportunities for businesses to develop stronger relationships with their supply chain or with other firms within their industry. Further proposals may enable levy funds to be pooled within a group of companies. It is not clear whether these details will be finalised and operational in time for the introduction of the Apprenticeship Levy, but the intention is to introduce these features at an early stage.

Institute for Apprenticeships

An independent employer-led body will be introduced by April 2017 to regulate the quality of apprenticeships. An independent Chair will lead a small Board comprised primarily of employers, business leaders and their representatives. Rachel Sandby-Thomas (Shadow CEO) started in April 2016 with responsibility for launching the new body.

Application of funds

Apprenticeship Levy funds are strictly for training and education costs. It is not permissible to use funds to pay wages, statutory licences, travel and subsidiary costs, managerial costs, traineeships, work placement programmes or to meet the costs of setting up an apprenticeship programme.

Challenging deadlines

At the time of writing, August 2016, there are less than nine months to launch but significant matters relating to the scheme remain unclear. There has been unprecedented political upheaval in recent months with the Brexit decision, leadership elections and a change in Government.

The most significant concern that we are hearing from our clients and industry bodies is the challenging timescale for the introduction of the Apprenticeship Levy. For example, software companies have not been provided with the necessary specifications to enable payroll software to be developed.

Whilst draft legislation exists in respect of how the levy will be collected from employers there is a real lack of communication in terms of the finer details of the scheme and how employers can benefit. Whilst information drips from the Government on certain aspects of the scheme, employers will not commit to investing in new programmes without a firm understanding of the rules that are going to be introduced. The inactivity of Government in this respect is in real danger of jeopardising the credibility of the scheme.

Next steps

There are great opportunities to benefit from the new apprenticeship levy but employers will need to know more of the fine detail if they are to be able plan early and consider the implications. Announcements are expected imminently so now is the time to review this area.