August 15, 2016

Apprenticeship levy: The key facts

Changes to the levy system mean firms will have to reassess how they pay and use funding.

“The important thing right now is for construction firms to start to consider how they will actually use this new area of funding”

The government today announced more details around the apprenticeship levy, which will come into force in April 2017. Large construction companies with a wage bill of over £3m will have to pay a 0.5 per cent payroll tax to fund the scheme, which is designed to pay for investment in training for apprentices.

With the government having quantified the apprenticeship levy as costing business £2.7bn for the first year alone, some businesses may view this as a stealth tax handily delivered via payroll, rather than a meaningful attempt to address the skills gap.

However, given that the levy is coming in and firms will have to absorb it, it is important that businesses across all sectors now review the costs and what assistance they may be able to claim to receive some of their value back.

Two levies to consider

Companies operating in the construction sector are of course well used to apprenticeships. They are also familiar with paying levies (the CITB’s being the obvious one).

It’s important to note that the new levies will need to be paid in addition to any already paid to a training board. Therefore we will need to wait and see whether the training boards seek to do anything to reduce this impact.

Construction companies should now look at how they will use the new funding that will be available to them through the new levy system. Will it facilitate more apprentices in traditional areas, or will it facilitate apprentices in less traditional areas such as support departments – finance, HR, legal, for example?

“For every £1 that enters the employer’s digital account to spend on apprenticeship training, the employer receives £1.10”

Hopefully the new regime will ultimately lead to more skilled apprentices and a reduction in the skills shortage, which is having a particularly acute effect on the construction sector.

Certainly for large companies, there will be little point in paying the levy and then not taking the advantages of claiming back training costs for new apprentices.

More details on how levy will work

We still need more detail in terms of how it will work, but the announcement today revealed that once employers have declared the levy to HMRC, they will be able to access funding for apprenticeships through a new digital apprenticeship service account. This shows a desire to make things easy for employers.

Levy-paying employers will be able to see corresponding funds in their digital accounts after their final declaration to HMRC, after 22 May 2017.

The government proposes to top up funds in employers’ digital accounts. For every £1 that enters the employer’s digital account to spend on apprenticeship training, the employer receives £1.10.

It’s worth noting that funds in the digital account expire after 18 months unless they are spent on apprenticeship training, so businesses should have apprenticeship investment in mind while their funds are still active.

In the first year of the levy, employers will be able to use funds in the digital account to pay for apprenticeship training and assessment for the employer’s own employees.

However, the government is seeking views on transferring 10 per cent of funds to another employer’s digital account from 2018.

The government will be releasing more details in October 2016. But the important thing right now is for construction firms to start to consider how they will actually use this new area of funding, given they are going to bear the cost in any event.

First published in Construction News