The Apprenticeship Levy-What you need to know
Today (April 6th 2017) the Apprenticeship Levy is being rolled out. By now most people have heard all about this, but how many of us REALLY know what it is all about? With so much information around in regards to the levy it can be difficult to take it all in and process so here you will (hopefully) find out all you need to know.
What is an apprenticeship?
An apprenticeship, as they currently stand, is a Government scheme put in place in 1994 as a way to work and study whilst being paid. An apprenticeship can take 1-4 years to complete, dependent on the level, with the minimum wage currently standing at £3.50 an hour (an employer can chose to pay more if they wish). If you are 22 or over or have been on an apprenticeship scheme for longer than a year this wage will increase. There are over 250 different types of apprenticeships and all see an apprentice learning as well being able to demonstrate a variety of different tasks and skills. An apprenticeship is usually made up of working four days with one day a week off to study. At the end of the course a number of certificates will be achieved including functional skills and a National Vocational Qualification (NVQ). For a more in-depth look into apprenticeships, this site is full of relevant information: https://www.getingofar.gov.uk/
How and why did the Apprenticeship Levy come about?
The Apprenticeship Levy was announced during the 2015 Summer Budget and is being put into place to improve the overall quality of apprenticeships as well as increase the number of people on these schemes. With the levy in place, it is hoped that by 2020 there will be 3m apprentices on placements, going on to boost the nation’s economy! For every £1 of government investment an apprenticeship typically provides a return of £26-£27. As well as the financial gain the professional and technical skills within the workplace are set to improve along with productivity, which will help improve the skills gap currently being experienced across a number of sectors.
Who will the levy effect?
The levy applies to less than 3% of UK employers. It applies to employers with an annual pay bill of £3million, these employers will have to pay a monthly levy to HMRC, which it is set at 0.5% of this bill and will be paid through PAYE. An annual allowance of £15,000 will be paid to the employer to offset the levy payment. This allowance is paid in monthly instalments directly into a Digital Apprenticeship Service (DAS) Account, used for training of apprentices whilst on their placement. Employers with an annual pay bill of UNDER £3million will not be required to pay the levy. For non-levy businesses with less than 50 employees there will also be a new £1,000 incentive towards apprenticeships for taking on someone aged 16 to18. The same time limits, penalties and appeal procedures that already exist for income tax are in place if the levy is not paid.
What is the digital apprenticeship service account?
The DAS Account is where your monthly allowance gets directly paid into. This account allows employers to access training providers for both their new and existing apprentices. There are two types of training to choose from Apprentice standards or Apprenticeship frameworks all training providers must meet an approved Apprenticeship standard, the costs of training are dependent on the level of apprenticeship. In addition to the annual sum of £15,000 (monthly payments of £1,250) an extra 10% from the Government will be added to your account. This means for every £1 spent on training funds employers will have £1.10 to invest into their apprenticeship training. If the training you wish to provide is a greater sum than what is in your DAS account or if you use all the funds before the end of the month you will have to pay 10% of any additional funds, with the Government then paying 90% up to the maximum funding band.
For the rest of the month any additional funding will then have to be covered by you, as the employer. External training providers do not need to be used if the employer is confident they can cover the training needs of their apprentices. For an employer to become a training provider they would have to be subject to Ofsted inspections to ensure adequate training will be provided throughout the apprenticeship. The funds will not appear in the employer’s DAS account until just before the end of May for levy paid on their April payroll. All funds expire after 24 months and are not carried over, which will act as an incentive for employers to allocate their funds efficiently and effectively so they are not wasted.
Employers who do not have to pay the levy will still receive the monthly instalments into their DAS account. From May this year these employers will pay 10% towards the cost of their apprenticeship training, with the Government paying an additional 90%, this is known as co-investment.
Apprenticeship levy: Two working examples
•Employer of 250 employees, each with a gross salary of £20,000
•Pay bill: 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 of 7000 employees, each with a gross salary of £32,000
•Pay bill: 7000 x £32,000 = £224,000,000
•Levy sum: 0.5% x £224,000,000 = £1,120,000
•Allowance: £1,120,000 - £15,000 = £1,105,000 annual levy payment
The Apprenticeship Levy has been greeted with both positive and negative responses. Whether you are an employer considering taking on apprentices or someone thinking about getting onto an apprenticeship scheme what are your thoughts?