Apprenticeship Levy

Apprenticeship Levy: what you need to know

The Apprenticeship Levy is coming into effect in April 2017

Here's what you need to know - and how you can turn it into a competitive advantage.

Employers with an annual pay bill over £3 million will be required to pay a 0.5% levy each month.

This is a cornerstone of the government’s skills agenda, creating a system which puts employers at the heart of designing and funding apprenticeships, including degree qualifications, to support productivity and growth.

Why the Apprenticeship Levy?

The UK has fallen behind on productivity. Output per worker (per hour) is 20% behind the G7 average and some 30% behind the US, Germany and France. Prolonged underinvestment in training was identified as a key factor in the government commissioned Richard Review. Underinvestment has directly led to a shortage of core and specialist skills, holding back employer needs and wider prosperity. Overlooking vocational training is likely to have contributed directly, with only 1 in 10 young people on apprenticeship schemes compared to 1 in 4 across Europe.

What support does the government offer?

Employers receive an allowance of £15,000 to offset against levy payments, with one allowance shared amongst connected companies.

Employers can get 'more out than they put in‘, through a top-up of 10% to their levy contribution. A further notable incentive is government funding at 90% for employers that go above their levy funds, which can be used on training and assessment within the funding bands. This means almost fully-funded training on apprenticeships when spending above the levy funds.

The existing funding model will continue until the Levy comes into effect May 2017.

What will the Levy mean in practice?

The Levy is payable from May, consider how much it is likely to cost and what type of training would be beneficial to invest in. It could support new hires or fund upskilling existing employees.

Taking into account the Levy of 0.5%, on pay bills over £3 million, and the expected government support in England, below is a worked example using a pay bill of £60 million:

 

£60m pay bill X 0.5% levy = £300,000  
Minus allowance of £15,000  = £285,000  
10% government top-up  = £28,500 
Total training amount   = £313,500 

The Apprenticeship Levy explained: MD/board-level overview

The Apprenticeship Levy recognises a much broader need for skills development and training in the UK. To start preparing to use the funds, consider your needs as an organisation – where are the skill shortages, what training could support your strategy and how will your talent needs change?

The funds available for training can support new starts or be used to upskill existing employees.

Higher and Degree Apprenticeships can develop specialist skills and train potential or current managers, through recognised degree and master programmes, while they work full-time. Funding degree programmes means the Levy can be used to address a range of developing skill demands. This is likely to require a holistic look at your organisation and an analysis of your workforce, before mapping-out possible use of levy funds – be this for new starts or existing employees. 

HR Directors – it is time to review your workforce plan

The Apprenticeship Levy is ushering in the creation of new apprenticeship schemes, right up to master-degree level and created by groups of employers to reflect their organisational needs. To best make use of the levy funds, take it as a prompt to review your workforce plan, wider skills strategy and the scope for available training.

Higher and Degree Apprenticeships provide comprehensive training and recognised qualifications, while your employees work in a full-time role with 20% spent in off-the-job training. Training can be applied for new starts or in upskilling existing employees, through development of specialist skillsets and also management training, with the Chartered Manager Degree Apprenticeship including a degree in Business and Management. 

The changes represent a significant shift in skills funding and increase in options for apprenticeship training. Grant Thornton has supported a number of organisations with workforce planning and created skill development strategies. This builds on our direct experience of the Trailblazer process, the employer-led government initiative for creating new apprenticeship schemes known as ‘Standards’. Think about the skills you need in your organisation and how this could be funded with the Apprenticeship Levy. 

The cost and funding of the Apprenticeship Levy – an FD overview

The Apprenticeship Levy represents a new cost to employers and will be paid at 0.5% of the pay bill each month. Payable from May on April payroll figures, the funds can be claimed back the following month to spend on apprenticeship training and are topped-up with an additional 10% from government.

Employers are estimated to pay a total of £2.6-2.8 billion per annum. For those engaging with the changes, the scope for funding is worth considering – government will fund apprenticeship training at 90% for employers that spend above their levy funds. With the broadening of apprenticeship training, this could be used to fund skills training and development across functional and service teams.

Higher and Degree Apprenticeships offer training in specialist areas, with undergraduate and master degrees available. A notable example is the Chartered Manager Degree Apprenticeship, which provides a degree in Business and Management while the individual works in a full-time role. There is also a National Insurance exemption for Employer NIC on 16-25-year-old apprentices, meaning a possible Employer NIC saving of 13.8% on wages.

Grant Thornton has briefed employers on the Levy changes and mapped-out the financial implications, covering the upfront cost, ongoing liability and compliance with the new system. In addition, it is worth considering the financial implications of apprentice hires and upskilling existing employees, determining cost savings and funding available versus possible additional costs. We recommend, and can support on, modelling these costs to assess likely return on investment.

In the context of mitigating the Levy as an upfront cost, it is possibly worth considering your wider workforce costs. Recent workforce cost management projects have included reviewing the provision of employee benefits to maximise tax efficiencies and ensure you are obtaining the best value for money from your spend; identifying areas where tax allowances and exemptions could be incorporated into expense and benefit arrangements; reviewing spend on agency workers; and designing incentive arrangements that also reduce NIC costs. If you would like further guidance on the support available from our Employer Solutions team, please contact the enquires email below. 

How the Apprenticeship Levy can give you a competitive advantage

The opportunity of the Apprenticeship Levy is still developing and readying your organisation could provide a real commercial advantage. To help achieve this, Grant Thornton have provided employers with insight into the Levy changes and apprenticeship training more generally.

The main focus is understanding your current position and the financial implications of simply paying the Levy as a tax or using the funds available.

You can read more about the opportunities available to you in our Five ways to make the levy an opportunity.

Apprenticeship Levy

Visit our Apprenticeship Levy hub for our expert insight on turning the levy into an opportunity.

Contact our Apprenticeship Levy team to find out more or to discuss turning the Apprenticeship Levy into an opportunity.

 Apprenticeship Levy calculator

Try our calculator to view your Levy liability, amount available to spend and how many training schemes this might mean.