Learn to love your levy – a practical guide
The Levy train is now well on its way and employers are seemingly more positive about it coming. There have a been a number of consultations since our last update, the main one being about new funding systems and how providers will operate.
- 24 Months expiry on levy pots
- funding bands (and rates) of 1-15 confirmed
- Additional 20% funding for 16-18 yr olds on Frameworks
- £1000 to employers for 16-18 yr olds
- Learners can multiple qualifications/apprenticeships at the same level
- Supporting providers need not register if delivering under 100K
- Sub-contracting allowed up to £500k – more rules on this to be announced
- Applications open now until 25th November
- Published March 2017 for public view
Further updates to follow.
Ask the experts
We continue to work with many organisations within the sector to help them through this difficult and complex initiative with much success – give us a call to help you too. Our Business Members can enjoy a free 1-2-1 consultation where we’ll discuss the likely costs of Apprenticeships under the new levy and to work out a draft levy strategy. Don’t worry if you’re not already a Business Member, you can still benefit from our expert advice and up-to-the-minute info, with a fixed cost, tailored consultancy package.
Accessing the Levy in England
The cornerstone of the levy will be a ‘digital account system’. Each business that pays into the levy will be able to access their levy pot for their England proportion, plus a 10% top up, via their own digital account. You then use your digital account to pay for training – no cash transactions just a digital experience.
If you are an England only organisation you will receive more back than you put in as the Government is also giving all Levy paying organisations a 10% top up into their digital accounts – i.e. if your levy bill is £100,000 you will receive £110,000 into your account.
If you operate outside of England you will only be able to draw back the proportion of the Levy that represents your English Workforce, as the digital account system is not available outside of England, i.e. if your levy bill is £100,000 but 20% of your workforce is in Scotland you will only be able to draw down £80,000 into your digital account, then 10% will be added to this to make it £88,000.
The extra benefits of the levy
As not all businesses who have to pay in will choose to access their whole levy entitlement this will mean there will be more money available within the system to better fund Apprenticeships for those businesses who do not pay it. The current proposals are that the Government will support non-levy paying business up to 90% of the cost of each programme, a significant jump from the current funding of 66%. For businesses that employ less than 50 employees the Government are proposing to fully fund any Apprentice under the age of 18.
This is 0.5% of the salary bill – your pay bill will be based on the total amount of earnings subject to Class 1 secondary National Insurance Contributions (NICs). Although earnings below the secondary threshold are not counted when calculating an employer’s NICs, they will be included for the purposes of calculating the amount of levy the employer needs to pay.
Earnings include any remuneration or profit coming from employment, such as wages, bonuses, commissions and pension contributions that you pay NICs on. The Government will not charge the levy on other payments such as benefits in kind, subject to Class 1A NICs.
Only businesses with a salary bill of £3m or above will be affected. Those with a salary bill below £3m will be exempt due to a tax allowance that offsets the levy of £15,000 (equivalent to 0.5% of £3m). This means it’s possible to start to calculate your potential levy bill.
If your organisation is part of a group or connected to another business in any way you will only be entitled to one allowance across the group. Businesses will need to decide how to share this between the connected organisations.
How to pay the levy
You will calculate reports and pay your levy to HMRC, through the Pay as You Earn (PAYE) process alongside tax and National Insurance Contributions (NICs).
If you have calculated that you will pay the apprenticeship levy, you will need to declare this and include it in your usual PAYE payment to HMRC by the 19th (or 22nd if you report electronically) of the following month.
This amount will then be paid back to you via you own digital account and accessible the following month.
The first payments will be made by organisations in April 2017 and accessible in May 2017. More guidance is due out on the HMRC returns process in the next few weeks.
Accessing your Levy
Once registered for the new digital service, levied employers will be able to select their PAYE schemes and access funds available to them as a result of their levy payments. This will allow employers with multiple PAYE schemes and connected companies to aggregate levy funds into one account on the service.
Employers will be able to see their levy contributions coming into the account monthly and accumulating over time.
Funds will first appear in account in late May 2017 after the employer has completed their RTI submission for April 2017.
The levy will come into effect from April 2017.
How is it collected?
It will be taken from your monthly returns to HMRC.
What happens to my levy if I don’t use it?
Funds will expire 18 months after they enter your digital account unless you spend them on apprenticeship training. This will also apply to any top-ups in your digital account. For example, funds entering your account in September 2017 will expire in March 2019, unless you have spent them.
Who is covered?
All businesses across the UK are affected. The ability to access the levy money however, is restricted to England. A proportion of the levy money collected will be given to the devolved nations who have the freedom to spend the money as they choose. This could be on Apprenticeships, general training or indeed roads, health service or any other areas they feel are important. Westminster cannot dictate usage, as skills policy is set at the devolved nation’s level. As yet, the devolved nations have not declared how they will use the money.
How will sites and businesses outside England train apprentices?
There are currently no plans for the same ‘digital voucher’ system to operate in the devolved nations and so access to funding for apprenticeship training is available to providers via the normal set ups. Currently providers have funding and employers will work with their training providers to undertake apprentices. Remember, the new Trailblazer Apprenticeships are not available in the devolved nations – they are still using the ‘Apprenticeship Frameworks’. There is no intention in the devolved nations to change these. In food and drink the NSAFD is working to develop new qualifications within these national frameworks that build on the Trailblazer qualifications and enable multisite businesses to use these to replicate – to a degree.
Each nation is currently undergoing a consultation on how it plans to spend their share of the Levy – updates are not expected until November or December 2016.
Will sites with a salary bill of less than £3m be affected?
The £3m is a single group level allowance – so even if individual sites in a group have a bill of less than £3m the allowance will only apply once and they will be in scope.
The levy will be payable through Pay As You Earn (PAYE) and will be payable alongside income tax and National Insurance. To keep the process as simple as possible “paybill” will be based on total employee earnings subject to Class 1 secondary NICs. Each employer will receive one annual allowance of £15,000 to offset against their levy payment. There will be a connected persons rule, similar the Employment Allowance connected persons rule, so employers who operate multiple payrolls will only be able to claim one allowance.
What about small businesses?
Smaller businesses will not have a levy - in the first year of the levy they will not access the digital voucher system although government are keen to expand it. They will contract and pay providers directly and providers will draw down funding from Government (as per the current system).The current proposals are to significantly increase the amount of Government support available to small businesses – results of consultation due at the end of October but current proposal are for only a 10% contribution from organisations.
What can digital vouchers be used for?
To pay for the training costs of Apprenticeships. They cannot be used to pay salary costs, learner accommodation costs or learner’s travel and subsistence.
They do not need to cover the costs of training in Maths and English as these are funded separately.
What restrictions are there on who can be trained as an apprentice and funded via the levy?
Digital vouchers can be used to pay for new Apprenticeships – whether they are started by a current worker or a new starter.
They must however be:
- New Starts – i.e. you can’t use the levy to pay or contribute towards any training costs for those people who have already started an Apprenticeship before May 2017. You will still have to budget for any apprenticeship contributions for current apprenticeships as per your current arrangements with providers.
- Employed – all apprentices must be employed. In normal circumstances you would expect this to be by your business, however there are plans to enable businesses to pass their levy ‘down’ the supply chain. What this will mean in reality is yet to be made clear.
- Commencing an Apprenticeship – The initial guidance was that it would only be the new style of ‘Trailblazer’ apprenticeships that would be funded, however as we predicted, there are indications that old style apprenticeships will be funded initially until they are replaced. The current consultation is appearing to show old frameworks are funded at a lower level than the new Standards to encourage both providers and employers to move to the new trailblazers.
Under the current system there are incentives to train younger people and specific rules around the levels of previous training an apprentice has; e.g. currently if an apprentice has a prior qualification, say at Level 3, then they cannot be funded to do another one for the same role – it has to be a different role. Also generally they can’t drop down a level; however the new guidance allows this:
“Employers will be able to use funds in their account or access Government co-investment support to train any individual to undertake an apprenticeship at a higher level than a qualification they already hold.
In addition, the Government propose that an individual can be funded to undertake an apprenticeship at the same or lower level than a qualification they already hold, if the apprenticeship will allow the individual to acquire substantive new skills and the content of the training is materially different from any prior training or a previous apprenticeship.”
This is good news for employers wishing to use the Levy for Workforce development.
Government are also proposing that there will be a bonus payment of £1,000 to both the employer and provider where an apprentice under 18 years of age. This is paid directly to the employer and not through their digital account. In addition, the provider will receive extra money if learners need Maths and English or additional learning support.
The current apprenticeship funding rules place conditions on which individuals can be funded to undertake an apprenticeship through the English system. The Government propose to simplify the current rules and apply a single test for whether apprenticeship training can be funded through the English system, depending on whether the apprentice’s main place of employment is England. The government propose that the definition of workplace is the physical place of work, designated by the employer, where the apprentice is expected to spend the majority of their time during their apprenticeship (more than 50%).
Transferring funds between organisations
During 2018, subject to a final value for money assessment, the Government propose to introduce means for employers to transfer up to 10% of the levy funds entering their digital account in a given year, to another employer with a digital account or to an ATA. The Government will assess the impact and effectiveness of these arrangements before considering how they could be expanded.
How much will each Apprenticeship cost? What flexibility is there to negotiate?
The recent consultation has released a new table of funding bands that all Trailblazers and Current Frameworks will sit within:
All existing and new apprenticeship frameworks and standards will be placed within one of these funding bands; this will depend on the level and type of apprenticeship. The upper limit of each funding band will cap the maximum amount of digital funds an employer who pays the levy can use towards an individual apprenticeship. The upper limit of the funding band will also cap the maximum price that government will ‘co-invest’ towards, where an employer does not pay the levy or has insufficient digital funds and is eligible for extra support. Different levels and complexities of apprenticeships for different roles have different rates. The final banding for all Frameworks and Trailblazers will be announced at the end of October.
Employers can negotiate the best price for the training they require
The rates will represent the maximum that can be used from the levy and no lowest rates – if a business negotiates a lower rate then they will only claim the lower rate from their levy; if they pay a higher rate than the funding rate then companies will have to pay for this from additional funds - i.e. they cannot use the levy funds to pay for additional costs above the rate set by the Government.
The price you agree should represent the cost for a provider to deliver the apprenticeship training required to a learner in a company including the End Point Assessment costs, which are usually about 20% of funding; i.e. if the Apprenticeship is £6,000, £1,200 of that is for the end assessment.
Who can I spend my digital voucher with?
The SFA are launching a new register for provider call the RoATP – all providers will need to be registered onto this to access the Levy via digital accounts. Providers will begin applying to be on this register from October 2016 and the successful providers will not be announced until March 2017 – extremely close to the start date of the Levy. If a provider is not on this register, they will not be able to work with organisations that have digital accounts. This register will just provide names of providers but will not provide guidance on the capability of a provider to deliver the Apprenticeships you want, which is why we recommend using ‘Industry Approved Providers’. These are the ones that the food and drink industry employer groups have identified as having the capability to deliver the requirements of the standards they developed.
Within the current system there is a significant amount of subcontracting between providers and Government is keen to minimise the level of this and is considering the following measures:
- A lead provider must deliver a minimum of 50% of each learner’s apprenticeship (i.e. can only subcontract parts of the standard where specialist support is required
- The provider must get the employers agreement to sub-contract parts of the apprenticeship
Government will allow managed agent arrangements but these sit outside of the system. Many providers and other organisations are offering this service, but at significant cost to either the business or the amount of funding a provider will receive, ultimately impacting on the quality of the programmes. As the NSAFD have a remit to protect the quality of provision and ensure the money reaches the learners, we would be happy to speak to you about how we can assist you in managing your Levy on an ongoing basis.
How can I best prepare?
We recommend that you start by working out the costs of the activity you are currently doing or planning to do on Apprenticeships in the new world of the levy. We can help you work through this calculation – if you are a Business Member of the NSAFD, contact your account manager and we will set up a meeting to discuss. At this stage the figures are preliminary, however they do provide a useful guidance as to what the future implications may look like.