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Apprenticeship Levy

The Apprenticeship Levy was introduced in April 2017. This new levy puts control of apprenticeship funding in the hands of employers through the Digital Apprenticeship Service.

Gail Power, Head of Delivery and Learner Experience here at DPG, says employers need to view the levy as a training budget in order to understand the purpose of the levy and how to get the most out of it. “Look at it as a training budget, rather than a tax”.  The levy is a mandatory fee that organisations with an annual wage bill of more than 3 million a year have to pay. But when that fee is paid, it basically amounts to money to spend on apprenticeships – training.

Why has the levy come about?

A couple of years ago, the government set a target of 3 million apprentices by 2020. The levy is the funding route as the plan is for it to raise £3 billion a year. The government set this target in order to tackle the UK’s growing skills problem. It hopes it will encourage employers to invest in the skills that the UK so desperately needs, whilst boosting the employment prospects of young people at the same time.

Nicky Morgan, former secretary of state for education and minister for women and equalities, said this in the foreword to the government’s 2015 report ‘English Apprenticeships: Our 2020 Vision’: “Around the world, apprenticeships have long been recognised as a crucial way to develop the skills wanted by employers. Our goal is for young people to see apprenticeships as a high quality and prestigious path to successful careers, and for these opportunities to be available across all sectors of the economy, in all parts of the country and at all levels.”

A very important aspect of the levy is that it places the responsibility to boost apprenticeship numbers firmly on the shoulder of employers. Why? As Morgan said in the report, it’s because employers need to take responsibility for their training needs: “Nobody understands the skills employers need better than the employers themselves. That is why we are placing them in the driving seat. They are designing apprenticeships so that they focus on exactly the skills, knowledge and behaviours that are required of the workforce of the future. A levy will put employers at the heart of paying for and choosing apprenticeship training, and place the funding of apprenticeships on a sustainable footing. Employers will choose between high quality education and training providers, or be able to train their apprentices themselves.”

Who is eligible to pay the levy?

Any employers in England with a wage bill of more than £3 million a year are liable to pay the levy, regardless of sector. The amount payable is 0.5% of an organisation’s wage bill, the wage bill being the total earnings of all employees in an organisation.

Northern Ireland, Scotland and Wales have a different apprenticeships system because apprenticeships are a devolved policy.

How does it work?

All companies are given an offset allowance of £15,000, which is a sum equivalent to 0.5% on a payroll of £3 million. The allowance is paid in monthly installments of £1,250.

The levy is collected by HM Revenue and Customs on a monthly basis through the PAYE system, alongside Income Tax and National Insurance Contributions. Single employers who have multiple PAYE schemes will have just the one allowance.

Employers in England can claim back levy contributions through digital vouchers, which they then use to pay for training apprentices. The digital voucher system is not available in Northern Ireland, Scotland or Wales.

When employers need to access apprenticeship funding, the idea is that you log onto your Digital Apprenticeship Service account, where you can also see the training providers who deliver the training that you need. There is a capped amount that you can spend on each apprentice. At the moment, there are 15 funding bands with caps and how much you can spend per apprentice varies according to their level and the type of apprenticeship. What this basically means is that higher level training that will take place over a long period of time has a higher cap level. You can find out more about the funding bands here.

It is important to note that levy payments now count towards corporate tax deductions.

Who provides the training?

There is a new Register of Apprenticeship Training Providers. Employers can also provide their own training, but they still need to ‘meet the same quality criteria’ as training providers.

What does the levy mean for business?

The levy does not impact on businesses with a wage bill of less than £3 million a year, but it does impact on those with a wage bill above that. It is really important that employers grasp the fact that if they hit or are above the wage bill threshold, then they are paying into the levy, whether they like it or not. So, as Power says, employers need to access the benefits afforded them by the levy, seeing as they are paying into it. “We need to get the message out there that if you have a wage bill of £3 million or more, you are paying into the levy. So there’s your training budget.”

Those employers who are liable need to view the levy as a form of training funding. You are paying this much in, you can take this much out of the pot – what is it that you want to spend the money on? What are your apprenticeship needs and how can you best meet them? “The levy is also about employers having a say in the learning of apprentices.”

This is the real benefit to businesses – that you are investing in training that will meet your training needs. The very nature of apprenticeships is that they are practical and enable apprentices to learn while being employed. “Ultimately, this is about employers bridging their skills gap and training people to do jobs,” says Power. “As an employer, you are playing a part in their training.”

There is a huge skills gap in the UK and employers need to do their bit to plug it.

How can HR sell this into financial teams and directors?

For those at or above a wage bill of £3 million, this ought to be simple, as they’ll automatically be paying into the levy whether they want to or not. As mentioned before, the levy is essentially more money that can be allocated to training, without additional money being written down in the budget. So, rather than losing the levy for nothing, it should be used for something that helps the business.

Another perspective that may get the company on board is that it is better to invest this money in something productive than to simply write it off in the annual accounts as a wasted “tax”.

If there is a question of benefit vs cost or time lost, a whole wealth of positive points can be found. First, ask yourself: what is the company vision, and how can apprenticeship schemes support this? The answers to this question are exactly what finance departments and directors need to hear in order to be able to justify and sign off on what, to them, may initially appear useful but superfluous.

Linking training and learning initiatives to a company KPI and taking steps to measure the impact of the apprenticeship investment can help you prove ROI, and ultimately help justify further initiatives.

The levy also reduces the need for employees to personally fund training. For example, in the HR industry it can be hard to seek funding for further qualifications, but funding it alone can also be hard. With the levy, this burden is mitigated by the fund the levy unlocks.

What we offer at DPG

DPG has always been about developing professionals, with training programmes for vocational learners. Our courses are about skills and behaviours. They are very practical and have a strong emphasis on real life scenarios. “That’s why apprenticeships are great for us,” says Power. “They are measured against standards and they are about developing people to do their jobs.”

We are now offering four Apprenticeship Standards. They are:

They are 18-24 month blended learning programmes, offered as a mix of elearning and face to face. It’s very manageable, only requiring participants to attend a workshop every six weeks. We run regular webinars, which are an hour long and can be accessed from any mobile device. With the new apprenticeship standards, 20% of the learning needs to happen on-the-job. Our blended learning route means apprentices can do their learning while at work.

A key feature of any DPG programme is the practical, hands-on nature of the learning. For instance, as part of some of the apprenticeship programmes, apprentices will gain access to our Business District, where they will be assigned an HR challenge to work on. “It’s about applying skills in a safe environment,” explains Power.

Each apprenticeship programme admits 14 people, currently taking place in major city centre locations across England.

Who is eligible to enroll on an apprenticeship programme?

It has to be someone who is already in employment or about to be employed. At Level 3, we take people coming into the market. Level 5 could be graduates, say for example someone who has done a business degree or wants to move into HR. They are either in an HR role already or in a role with a lot of HR elements in it.

If you’d like to find out more, fill out the form below and one of our advisors will be in touch.