FD Intelligence

How to navigate the new apprenticeship levy

Maximise the new apprenticeship levy with these four key factors for companies to consider.

The government's English Apprenticeships: Our 2020 Vision sets out an ambition to increase the quality and quantity of apprenticeships and to achieve three million apprenticeship starts by 2020. Given the need for millions of new technical and skilled workers, one of the key policy tools will see the introduction of the apprenticeship levy in April 2017. This will require all employers in the UK with a total pay bill in excess of £3 million to pay an annual levy of 0.5%. Critically this also includes any connected companies, or charities, with pay bills of less than £3 million.

How employers can access funding

As apprenticeships are a devolved policy, England, Northern Ireland, Scotland and Wales will each manage how funding will be made available to spend on apprenticeship training.

At present, only England has published details around funding and the remainder of this article applies only to England. Information about the devolved administrations will be made available as and when it is published.  

Use it or lose it

These levy funds are only valid for a period of 18 months, to pay for the training and assessment of new apprentices. It’s effectively a ‘use it or lose it’ system. Employers can also benefit from the option to take out more than they pay in, with a 10% top up on their levy available from the Treasury. This means that an employer with an annual levy of £10,000, can potentially spend £11,000 on their qualifying employee training. 

Grant Thornton has been working closely with a number of our clients to assess the apprenticeship levy’s impact across their organisations, and how they can prepare for April 2017. There are a number of common themes and issues arising from these discussions, outlined below. 

1. What is an apprentice?

We’ve noted a number of myths as to what constitutes an apprentice under these new arrangements. In reality the definition is remarkably broad, covering any employee working towards achieving a government-approved standard via a training programme lasting for a minimum of 12 months. There are more than 1,100 apprenticeship standards in development by employers (called ‘trailblazers’) working in conjunction with the Skills Funding Agency (SFA).

The opportunity exists for employers to develop, as trailblazers, new apprenticeship standards. There is scope to work with industry bodies or other employers in your sector to design an apprenticeship that meets your specific training requirements. 

2. Calculating the net apprenticeship levy cost

Most employers will quickly quantify what their annual levy payment will be but few have looked at the actual net cost when factoring in their Class 1 NIC savings for apprentices under the age of 25, corporation tax relief and potential overall reduction in training costs through the digital voucher scheme. 

The funding of existing employee training needs consideration as organisations move to a new system where the levy is offsetting these costs via digital apprenticeship vouchers. FDs should consider that the levy will not sit in isolation as a new payroll tax and in running various financial scenarios organisations should holistically consider the net cost, or benefit, in the context of their wider workforce strategy.

3. Payroll systems and cost management

Employers should spend the next few months ensuring their payroll data is up to date to properly access and draw down levy funds for qualifying employee training in England.  Similar to the introduction of Real Time Information (RTI) reporting, a payroll data cleanse exercise could ensure all the correct and up-to-date information is being captured. 

An exercise on workforce cost management, assessing the levy’s impact on your existing training needs and graduate recruitment programme, will allow employers to identify opportunities and possible savings linked to the NIC exemption applying to apprentices under the age of 25.

Employers may also wish to consider additional employee training for their HR and payroll teams.

4. Workforce planning and the training landscape

To maximise the benefit of the levy and minimise net costs, employers should look critically at their existing workforce structures, recruitment profiles as well as employee training and development needs. This should be undertaken in the context of the wider business ambition but may include strategies to expand current apprenticeship offerings, converting existing or new roles into apprentices, and looking at your school leaver and graduate recruitment profiles.

The training landscape is complex: there are thousands of registered training providers and more than 100 approved apprenticeship standards. And with changes to the funding arrangements, along with funding bands, employers should start to explore how best to fulfil their training requirements or use their existing training capability. Getting the right advice at this critical time will be key to navigating the system.

Next steps

Given its breadth, remit and scale, the obvious impact it will have on skills training and how quickly it is introduced, the new apprenticeship levy will be a challenge for most employers. This is without factoring in the inevitable impact which Brexit, and our changing relationship with the EU, is likely to have on the UK economy.

To better manage this process, Grant Thornton has started advising a number of employers on effective strategies for maximising the benefit and minimising the impact of the new levy. If you would like to discuss any aspect of the new apprenticeship levy or arrange a discussion on our ‘Apprenticeship Readiness Service’, please contact your Grant Thornton adviser.