People Management wades through the detail as the government explains more about how employers will be taxed, and how they’ll access funding
The clock is ticking on the forthcoming apprenticeship levy – and for employers still confused about how they’ll pay, and how their existing apprenticeship training will be affected, the release of a new tranche of information from the government comes not a moment too soon.
Apprenticeship levy: how it will work, published through the Department for Business, Innovation & Skills, is the first in a promised set of information releases about the levy.
The key facts are straightforward: from 6 April 2017, employers with a wage bill of more than £3 million will pay a 0.5 per cent levy to fund apprenticeships. The government’s aim is to raise £3bn a year to create three million more ‘high quality’ apprenticeships by 2020.
But the relative complexity of the detail is causing unease. Gerwyn Davies, public policy adviser at the CIPD, says: “The key concern for me is the very ambitious timescale, and that employers are expressing concern that they won’t be able to capitalise on the full potential of the levy.” The detail is daunting, he adds: “It’s far more complex than it needs to be.”
Fortunately, People Management has done the hard lifting to pull out the most salient points.
Who will pay the levy?
Only organisations that have an annual pay bill that exceeds £3 million a year will be expected to pay the levy. The levy will be charged at 0.5 per cent of that annual pay bill, but eligible employers will receive a £15,000 allowance – available through the Digital Apprenticeship Service – to offset the costs.
Employers that belong to an industry where a levy system operates already – and which they contribute to – will still be required to pay towards the apprenticeship levy.
However, even companies that are exempt will need to use the Digital Apprenticeship Service to pay for apprenticeship training and assessment – though not until at least 2018. When this kicks in, the government says it will assist organisations with preparation, but details in this area are currently lacking.
Mark Dawe, CEO of the Association of Employment and Learning Providers, says: “It is imperative that we keep non-levy payers, who account for more than half of apprenticeship opportunities currently offered, on board. If the financial contribution they have to make is too high and the payment system is too complex, we will lose them – the government needs to think carefully about this.
“The guide is very clear for levy payers, but not for non-levy payers, especially SMEs. There’s a lot of talk at the moment about the government giving SMEs £2 for every £1 of employer contributions, but it’s not clear what the rate will be. Our worry is that they won’t be willing or able to pay, so the amount of apprenticeships with smaller organisations might be affected. The government may change the rate each year for SMEs, so there’s a big uncertainty there in the document.”
What will employers’ levy bills be based on?
Eligible organisations will pay subject to the total earnings of the company after Class 1 secondary national insurance contributions (NICs). Despite the fact that earnings below the secondary threshold are not counted when calculating employers’ NICs, they will be included for the purposes of calculating the amount of levy due.
In this instance, earnings will include any remuneration or profit coming from employment, such as wages, bonuses, commissions and pension contributions that businesses pay NICs on. However, the government will not charge the levy on other payments, such as benefits-in-kind, subject to Class 1A NICs.
How will the levy allowance work?
Companies will be given a monthly allowance of £1,250. Any unused allowance will be carried over for 18 months. Should an employer have unused allowance after paying the levy in the previous tax year, they can receive a credit to offset against their PAYE liabilities. The credit will also reduce the amount of levy paid.
Funds, including any top-ups, will automatically expire 18 months after they enter an account unless they are spent on apprenticeship training. However, the government has highlighted that it will let users know “in good time” whether any funds are due to expire.
What are the mechanics of payment?
Employers will have to calculate, report and pay the levy to HMRC through the PAYE process alongside tax and NICs. If an organisation has calculated that it needs to pay towards the levy, it will need to declare this and include it in its usual PAYE payment to HMRC by the 19th (or 22nd if they report electronically) of the following month.
Any apprenticeship levy payment to HMRC will be eligible for corporation tax.
What about groups of employers?
The government says it will introduce an amendment to the Finance Bill 2016 about the allocation of the levy allowance, meaning that, if an employer is part of a group of connected employers, it must decide what proportion of the levy allowance each employer in the group is entitled to. This decision must be taken at the beginning of the tax year and fixed for that year. Following that, each employer will calculate what they have to pay through the process above, using their portion of the £15,000 allowance.
How can companies access what they’ve paid under the levy?
Once organisations have paid their levy, they will have access to funding for apprenticeships through a Digital Apprenticeship Service account.
The service, which is only available in England, will help users develop and deliver their apprenticeship programme. Separate arrangements will be put in place in Scotland, Wales and Northern Ireland.
Online tools will be available over the next year, and users will be able to register from January 2017. Once registered, they will be requested to verify their PAYE schemes and link them to their account. They can set up multiple accounts should they wish to keep their schemes separate.
Funds will appear on a monthly basis once users confirm their payroll and levy contribution to HMRC for the previous month, meaning that the first set of funds will appear in accounts from late May 2017. The government will also provide a 10 per cent top-up to employers’ funds for training apprentices, which will be delivered in tandem with funds entering accounts.
Can levy funds be used to train other companies’ apprentices?
For the first year of the levy, employers will only be able to use the funds for training and assessing their own apprentices, but the guidance suggests this will change. Further guidance is expected in June 2016.
What about funding for current apprentices?
For apprentices who begin their training before April 2017, funding for the full duration of the apprenticeship will be provided under the terms in place when the apprenticeship began.
Employers will need to decide what type of training they want to use, whether it be a new apprenticeship standard developed by organisations, or an existing apprenticeship framework made up of a series of work-related vocational and professional qualifications, supplemented by workplace and classroom-based training. These will be phased out by the government between now and 2020, when all companies will have to chose apprenticeship standard training that sets out core skills, knowledge and behaviours.
Once apprenticeship training from a provider has been agreed and the apprenticeship has begun, monthly payments will be taken from the employer’s digital account and given to the provider. The government has highlighted that organisations may have more flexibility around when funds leave their accounts in future, though funds can only be used for approved apprentice training providers.
Should an employer not have enough funds in its digital account for apprenticeship training at any point, it can set a price with the training provider and the government will provide ‘support’ to help meet the cost. This will be available up to the maximum amount of funding available for the apprenticeship, and organisations that make use of it will be requested to make a contribution to the extra cost of training, to be paid directly to the provider over the course of the apprenticeship.
Should an employer take on an apprentice aged between 16 and 18 at the start of their apprenticeship, they will receive a payment to help meet the extra costs of employment. Additional financial assistance will also be given to companies recruiting apprentices between 19 and 24, apprentices with an Education, Health and Care Plan provided by a local authority, a 19-24-year-old who has been in the care of a local authority, or an apprentice with additional learning needs such as dyslexia.
When will further information be available?
The government says it is reviewing how it defines what businesses can use apprenticeship funding for, and draft details are set to be published on the proposed funding rules in October 2016, with a final version to be released in December.
In June 2016, more information will be available regarding provisional funding bands; the provisional level of government support available towards the cost of apprenticeship training for non levy-paying employers; the provisional level of the extra payment for hiring 16-18-year-old apprentices; and who can provide apprenticeship training and how they can get started.
There will also be further employer guidance from HMRC on how to calculate and pay the levy.
Has the initial report gone far enough?
Dawe believes it has failed to address many key concerns. “The clock is ticking, and the outstanding further guidance is crucial to determining how successful the levy will be. Employers ought to be looking very carefully at what they need to be doing,” he says.
“It has clarified some points we’ve been waiting for in terms of how the levy will be calculated. However, there is a list of outstanding issues, which leaves just as many questions unanswered. It’s not clear what the cost of each apprenticeship will be, how many apprenticeships employers could have, or how much of employers’ levy contributions they will use.”
Davies adds: “Greater clarity is required in relation to whether employers recover some of the wider costs associated with apprenticeships, such as travel or accommodation costs for external courses, and whether they can use their supply chain. This information is urgently needed by employers, some of whom are already planning how to allocate their training budget next year.”