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Government publishes new apprenticeship levy guidance

The Chancellor announced the apprenticeship levy in the post-election 2015 Budget, as a way to fund the three million apprenticeships that the Government promised to deliver over this Parliament, an extraordinary and some say unachievable target.

The Government feels that employers are not doing enough to provide training opportunities for British workers and so the levy is designed to force employers to do and pay more. It will be introduced from April 2017, and this will affect employers in all sectors. The levy will be paid on annual paybills in excess of £3 million at a rate of 0.5%.

While London First supports quality apprenticeships and upskilling Londoners, the levy is a further tax on employment and takes no account of how much businesses already invest in their people, as we pointed out to the Department of Business, Innovation and Skills (BIS) last Autumn.

It is therefore important that the resources generated by the levy are additional to current government spend; are spent on training and not lost through administrative costs; are accessible to small and medium businesses; and support those firms already doing a good job in training.

If the Levy is to deliver the increase in skills that many Londoners and London businesses need, there has to be an effective dialogue between employers, government and kite marked training providers – universities, colleges and others – to match businesses needs and individuals’ capabilities with high-quality, relevant training packages. In London, this is best managed by London rather than national government.

The Government is currently in the process of working out the operational detail of the levy, following last year’s formal consultation which London First fed into.  They have just released a guidance note for employers, with others to follow in June and September, and this can be found here.

The key points to be aware of are:

  • Employers will pay the levy on their entire pay bill at a rate of 0.5%. However, they will have a levy allowance to offset against this, and this is worth £15,000 for each tax year.
  • Payment starts April 2017 via HMRC, collected monthly from the employer as a pay bill tax.
  • The Government will top up the employer levy payment by 10%.  So, if an employer pays a levy of £100 p/m, they’ll get back £110 to use to pay for apprenticeship training.
  • Each levy paying employer will have a digital training account where the money sits.  Employers then can draw down this money via a digital voucher scheme.
  • The levy only covers the cost of apprenticeship training and assessment.  Not wages, marketing, or other costs.  This is an obvious point, but worth making: as it stands the levy only covers apprenticeships, and we are concerned about the impact that this could have on other forms of skills support, e.g. graduate training or employer sponsored degrees.
  • Only apprentices that start after April 2017 are eligible for funding under the levy.
  • 16-18 year old apprenticeships or those with additional needs will attract extra government funding support.
  • A digital apprenticeship service will be set up to help employers access and choose approved training providers and training provision.
  • Once the apprenticeship starts, training costs are automatically taken from the employer’s digital account and paid to the training provider on a monthly basis.
  • If the levy funding doesn’t cover the full cost of the training, then there is some government funding support but the employer will also be expected to contribute more.
  • The guidance doesn’t say anything about how much, if any, of the employer’s levy money will be lost in the process to covering administrative costs.  London First will be looking at this point.
    An employer’s levy money will expire if they do not use it in 18 months.
  • These arrangements cover apprenticeship training in England only.  The Government is trying to work out what to do with employers who have a presence in Scotland, Wales or Northern Ireland, and this potentially adds a layer of complication and bureaucracy for employers.
  • At the moment, if an employer is already paying a training levy e.g. the construction CITB levy, they will need to continue to pay that as well as the apprenticeship levy.  But the Government is looking at this.
  • Arrangements are being made for those employers who want to transfer their levy funding to another employer e.g. an SME in their supply chain.  This is important, since SMEs are less likely to provide training to their staff.

London First is seeking to arrange a members’ roundtable with BIS in early summer to raise concerns, ask questions and help shape the continuing development of the detail.

At this stage, we would expect employers to be modelling the financial impact of the apprenticeship levy and the impact on their workforce recruitment and development strategies. This new guidance starts to help that process.

In the meantime, we will continue to talk to members about the implications of the levy, but if you have any questions please contact Mark Hilton

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