Smaller employers however, may have been less tuned into the news as they will not be subject to the levy payment.
Despite this we’ve been following updates closely to find out what, if any, might be the impact on SMEs. Here’s our latest overview which we’ve created with SMEs in mind.
What is the Apprenticeships Levy?
If you’re coming into this new, the Apprenticeships Levy is a payment that will be collected from large employers in both the public and the private sectors. The payment is paid to the HMRC via PAYE returns.
The purpose of the levy is to encourage employers to invest in apprenticeship programmes and to raise additional funds to improve the quality and quantity of apprenticeships.
The Apprenticeships Levy paid by businesses can be accessed by those same businesses to fund apprenticeship training in their business.
What size of business will be subject to the levy?
The levy threshold is calculated by size of payroll. Businesses with a wage bill of more than £3 million will be required to pay a levy. This payroll threshold only applies to 2% of employers, which means only larger SMEs fall into this bracket.
How much is the levy?
The levy amount is 0.5% of a company’s payroll, and every employer gets an allowance of £15,000 to offset against the amount they owe.
That’s why it only applies to businesses with a payroll over £3m. So to explain:
A business with a payroll of £3m:
£3,000,000 (payroll) x 0.5% (levy amount) = £15,000 (amount owing pre allowance) – £15,000 (levy allowance) = £0 (levy payable)
A business with a payroll of £6m:
£6,000,000 (payroll) x 0.5% (levy amount) = £30,000 (amount owing pre allowance) – £15,000 (levy allowance) = £15,000 (levy payable)
When will it be payable?
Businesses will be subject to the levy payment from April 2017 and it will be payable monthly.
Where does the money go?
All businesses that pay the levy will be able to access their contribution in their online digital apprenticeship service account. This account can be used to pay for apprenticeships training and assessment in England.
As their levy payments go out monthly, they will start to see funds appear in their digital account a few working days later.
Businesses will be able to set up their account with the digital apprenticeship service in January 2017 to get used to how it works. The first time they will see any funds in their digital accounts will be late May 2017 a month after their first payment in April 2017.
Does the government contribute anything?
Yes. As the money goes into the digital account, it gains a 10% top up from the government. That means for every £1 that enters a business’ digital account it gets an additional 10 pence.
Using the £6m payroll business as an example, if a business pays £15,000 in levy payments throughout the year which is gradually appearing in their digital apprenticeship account, they will also gain an additional £1,500 from government throughout the year too, so they have £16,500 to pay for apprenticeship training and assessment in their digital account.
Is there a time limit on spending the funds raised in a digital account?
Yes. Funds that businesses accrue in their online digital apprenticeship account will expire 18 months after they appear unless they’re spent on apprenticeship training. This applies to the top-ups too.
Will smaller businesses be able to access the digital apprenticeship service?
Yes. Whether you pay the levy or not, the arrival of the digital apprenticeship service is relevant as it will be available to help all businesses do the following:
- select an apprenticeship framework or standard
- choose the training provider or providers you want to deliver training
- choose an assessment organisation
- post apprenticeship vacancies
And by 2020, all employers will be able to use the digital apprenticeship service to pay for the training and assessment for apprenticeships.
So how will non levy payers pay for apprenticeship training?
From April 2017 as the levy comes into existence, there will also be a new funding system for businesses that run apprenticeship programmes. The objective of the new system is to increase businesses’ purchasing power and control over apprenticeship training.
To begin with you will choose the apprenticeship you want, and the training provider you want to deliver it, and you will agree a cost for the training with the provider. The government will ask you to make a contribution to the cost of training and government will pay the rest up to a cap. The potential contribution amount is £1 from your business for every £2 provided by government up to the maximum level of funding available for that apprenticeship, although this has not been confirmed and recent news suggests there might be a higher contribution from government.
The government will ask you to pay this directly to the provider and you will be able to spread it over the life time of the apprenticeship, to an agreed schedule. As both you and the government make a payment, it’s called ‘co-investment’. The government will pay their part of the training costs direct to the provider.
Currently, the Government is also offering three additional incentives to employers running a Trailblazer apprenticeship. These incentives can be claimed:
- When an apprentice is aged 16 – 18 when they start
- When the employer is an SME
- When an apprentice completes their training, employers will receive a bonus payment
In some situations, these additional incentives will mean that 100% of training costs to the employer are covered.
The government will provide more details on the proposed rate of government support in June 2016 (announcement slightly delayed due to EU referendum) and confirm it in October 2016. Apprenticemakers will provide updates throughout this time to help smaller businesses understand how it will work.
How is the levy relevant to smaller businesses?
Unused levy funds, (i.e. those that have gone beyond 18 month expiry date) will be used by the government to fund apprenticeships training for SMEs. Skills Minister Nick Boles told the House of Commons in March that the £2.5bn raised by the levy for training in England would be expected to stretch to cover all employers with apprentices, regardless of their size, as there would be many employers not using the money in their digital accounts.
At the moment there is consideration being given to whether those businesses that are paying the levy can use the funds they accrue in the digital apprenticeship service to fund training for other businesses, such as smaller businesses in their supply chain. The government is still making an assessment of the pros and cons of this approach, including the trade-offs with other design choices, before providing further information this month (June 2016). Under the current guidelines this isn’t possible, however recent news articles in the food sector suggest that this approach is being given serious consideration.
One thing that all seemed agreed on is that the arrival of the levy will raise the profile of apprenticeships amongst all businesses, and this likely to have an impact on small businesses that are considering apprenticeships programmes.
Why is the government imposing the levy?
This forms part of the government’s plan to raise the number and quality of apprenticeships.
The levy is set to raise £3 billion a year (£2.5 billion for England), helping to fund the government’s target of 3 million apprenticeships in this term.
The Chancellor stated that those paying they levy would be able to get out more than they put in, and that the government will improve the quality of apprenticeships by increasing the funding available per place.
What’s the business response to the levy?
News about the levy has been received to mixed reviews with some business organisations voicing concerns that larger business will also have to find additional funds to pay for the ‘on costs’ of recruiting more apprentices.
Others have welcomed the levy as a way to raise funds to increase the quality of apprenticeships across the board and as a mechanism for ensuring apprenticeships are built into the skills plans of all larger businesses.
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