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Apprenticeship levy – A simple guide to changes this week

On Thursday 6 April 2017 the Government is introducing a new Apprenticeship Levy which any company operating in the UK, with a pay bill of over £3 million a year, will have to pay.

Here, Indra Pooran, Training Coordination Manager at AutoRaise – the vehicle repair industry charity – provides a neat overview of what the new Apprenticeship Levy is and how it will work.

The new levy has been introduced to drive up the number of apprentices in order to reach the Government’s target to train three million apprentices by 2020. By introducing these changes, the Government is putting employers in charge of their training budgets by allowing them to choose the most appropriate training provider and apprenticeship Standard to best meet the needs of their organisation.

Employers will have to pay 0.5% of their annual payroll into the levy however an annual allowance of £15,000 (non-cash payment) will be applied. This allowance reduces the amount of Apprenticeship Levy employers have to pay by £15,000 across each year and can be allocated (to be deducted) from employers PAYE payments. For example, if an employer’s total pay bill is £3,150,000 then with the allowance taken into consideration, they would be paying a levy of 0.5% of £3,135,000. If with the £15,000 allowance a paybill is less than £3m then the levy would not be applied.

Money in the levy pot can only be used by employers to fund training of apprentices and the new End Point Assessments. These apprenticeships can be either existing framework qualifications or the new Standards which are being created for the sector.

Find out how much you might have to pay using the Levy calculator:

How will it work?

Payments to the levy will be made through PAYE directly to HMRC on a monthly basis. The money is then ring-fenced in a pot for the employer to spend on apprenticeship training. An employer has 24 months in which to spend each monthly payment as it accrues in their pot.

Levy paying employers will have to register to use a new Digital Apprenticeship Service (live from February 2017) which will enable them to manage funds in their levy account. You can register here:

Levy paying employers you can also use the apprenticeship service to:

  • Set the price they have agreed with a training provider
  • Pay for apprenticeship training and assessment
  • Tell the Government to stop or pause payments (for example, if an apprentice stops their training, takes a break from training or if an employer feels they haven’t received the service agreed with the provider)

Through the online apprenticeship service all employers will be able to:

Non-Levy payers – how will they pay for apprenticeship training?

Non levy paying employers will still have to co-invest 10% of training fees to their training provider for the apprenticeship training. They can choose whichever training provider they wish and negotiate a price for training.

For example:

  • Upper limit of funding band allocated for the Standard = £9,600
  • Employer negotiates a price of £9,000 with their chosen training provider
  • Government will co-invest 90% = £8,100
  • Employer co-invests the remaining 10% = £900
  • The employer and provider agree to spread this over the life of the apprenticeship – in this example, twelve installments = £75 per month

In the first year, employers will pay their co-investment share directly to training providers. Payment will be made by the employer directly to the training provider.

The Government has introduced a number of incentives to employers when taking on an apprentice including:

  • A payment of £1,000 to all employers taking on an apprentice aged 16-18
  • Funding 100% of the cost of apprenticeship training for a 16-18 year old for a business with few than 50 employees

Both levy payers and non-levy payers will have to contribute 100% to apprenticeship wages. These are not covered by the Levy or the Government.

“There is a lot of miss-information around about the apprentice reforms,” said AutoRaise Trustee and Chairman Chris Oliver. “As an agenda free not-for-profit organisation AutoRaise are here to provide jargon-free clarity on any of the changes taking place. We understand that business owners in our sector may not have the time or appetite to engage with this ever changing landscape and this is exactly why we set AutoRaise up. If anyone is at all unclear, or just wants to find out more about how to employ, train and develop any kind of industry apprentice, please contact one of the AutoRaise team, they would be delighted to help.”

It’s essential that the industry gets behind addressing the skills shortage, whether it be taking on new apprentices, hosting Industry Showcase Events or simply helping to spread the word.

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