From 6 April 2017, UK employers with an annual wage bill of £3 million or more will pay an apprenticeship levy. How will the levy work in practice and across the devolved UK nations?
From 6 April 2017, UK employers with an annual wage bill of £3 million or more will pay an apprenticeship levy, with the aim of funding apprenticeships across the UK.
As apprenticeships are a devolved matter, the funding generated will be used differently in England, Scotland, Wales and Northern Ireland.
Employers will be able to access funding in all devolved jurisdictions to assist with training costs of apprentices. However, to do so will require the selection of approved apprenticeship schemes, as determined by the devolved administrations.
The purpose behind the decision is to provide better quality apprenticeship schemes across the board. In reality, the UK government is passing most of the costs for funding apprenticeship training on to levy payers themselves.
Employers could lose out if they have already developed or use bespoke training programmes that do not meet the required 'approved apprenticeship scheme' standards. In order to benefit from funding and the levy they've paid in, employers will have to adapt their apprenticeship scheme to meet these standards. Otherwise, the levy will simply be another cost for the employer to bear.
The levy equates to 0.5% of an employer's annual wage bill and will be collected monthly by HMRC via PAYE.
Each employer will receive an allowance of £15,000 per year to offset against the levy. The allowance can only be used once where a group of companies are connected, but connected companies have the freedom to choose how the levy is split between each of them.
In England employers will pay the apprenticeship levy which will then be attributed to the employer's individual digital account. The government will also provide a monthly 10% top up.
Those funds can be used to pay for approved apprenticeship training, with employers having the option to become 'approved training providers', providing the training in house.
The amount in each employer's account depends on the rate of levy that the employer has to pay. If this isn’t enough to cover the cost of the training, the employer would need to cover the deficit. Some government support would be available to help meet the additional costs.
Those who don't need to pay the levy will continue to receive 90% government funding towards the cost of apprenticeship training (up a maximum level of funding available for a particular apprenticeship).
It is a 'use it or lose it' scheme as funds in the digital account will expire after a period of 24 months. Though not confirmed, we expect this would be used to fund apprenticeship training costs of non-levy payers.
For employers with a UK-wide presence, the funds allocated to their digital account in England will be determined by the home address of their employees. In the other UK nations, funds will be allocated to the devolved administrations using the Barnett formula, who will then determine how these funds should be allocated.
Funding via the Barnett formula is not 'ring-fenced' and so the devolved administrations will have freedom to decide where to award funds and which apprenticeship schemes to support. As such, not all funds raised will directly correlate to accessible funding for employer's training costs.
The devolved administrations have indicated that funding will be invested in a variety of programmes to support apprenticeships, rather than simply support the cost of training apprentices.
Perhaps this is necessary, as levy funding will replace current allocation through UK departmental expenditure, rather than offering additional funding for devolved administrations to invest.
This is a different approach to that in England, where the allocated levy fund will be given directly to levy payers to support training costs. This approach gives employers more transparency on where their money is going and how it is being used.
In contrast to the English approach, the Scottish government will invest in a range of programmes to support skills, training and employment in Scotland. Effectively the money will be invested within existing programmes such as the modern apprenticeship scheme and the youth employment strategy 'Developing the Young Workforce'. Additional on-going support will be provided to specific, priority sectors.
The Scottish government also announced that a new Flexible Workforce Development fund will be introduced in autumn 2017. The purpose behind this is to provide support for employers with up-skilling or re-skilling their employees.
In short, not much will change in Scotland following the introduction of the apprenticeship levy. Funding for training courses will continue to be available to those employers who offer an approved modern apprenticeship.
Similar to Scotland, the Welsh government will continue to fund their existing apprenticeship programme. The message to employers is that they don't need to wait until the apprenticeship levy is in place in order to benefit from its apprenticeship programme. The programme is open to all employers with funding prioritised to meeting the economic needs of Wales.
As with Scotland and Wales, funding for Northern Ireland will be made available using the Barnett formula and so it is for the Northern Irish government to determine how funds will be allocated to support apprenticeships.
In November 2016, the Department for Economy published a consultation for views on how employers should be supported for apprenticeships and wider skills development in Northern Ireland.
The consultation closed on 23 December 2016 and a response from the Department for Economy is awaited. In the meantime, employers in Northern Ireland can continue to access support for apprenticeships via existing programmes.
Concerned about how the levy will impact your business? Get in touch with one of our employment specialists to discuss how this might affect you.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions