BIS has published new guidance on the Apprenticeship Levy, on how it will work and who it will affect. This follows an HMRC policy paper on the Apprenticeship Levy, as well as the draft legislation for its implementation.

Below is a recap of what we know so far:

• The main aims of the Apprenticeship Levy (from the Government’s perspective) are increased productivity within the UK workforce and encouraging the creation of apprenticeships and skills training.
• There will be no exemptions at all and all public sector institutions will be subject to the Levy too. It is due to be introduced from April 2017.
• The levy will be payable at a rate of 0.5% by employers with a paybill in excess of £3m. Each employer will receive one annual allowance of £15,000 to offset against its levy payment. See the examples below:
  • Charity X has a total paybill of £10m
  • Levy sum: 0.5% of £10m = £50,000
  • Allowance: £50,000 – £15,000 = £35,000 annual levy payment
  • Charity Y has a total paybill of £2m
  • Levy sum: 0.5% of £2m = £10,000
  • Allowance: £10,000 – £15,000 = £0 annual levy payment
• The legislation introduces a connected charities rule (which mirrors the test used for the Employment Allowance and the Gift Aid Small Donations Scheme) and where there are connected charities it appears that only one of the charities (which can be nominated by the charity) will benefit from the allowance, with the others required to make a levy contribution.
• Organisations will be able to use their levy contributions to pay for training for those that meet the definition of an apprentice. Employers will be able to use their funding (up to a cap which will depend upon the standard or framework that is being trained against) to cover the costs of an apprentice’s training, including English and maths, assessment and certification. It will not be possible to use levy funds to cover any costs other than those training and assessment costs listed in the above paragraph. Overheads, supervision costs and apprentices’ wages will not be funded by the levy.
• Employers will not be able to spend an unlimited amount of money on a single apprentice. Funding caps will be set which limit the amount of levy funds an employer can spend on training for an individual apprentice. The cap will vary according to the level and type of apprenticeship (for example, more expensive, higher quality training is likely to have a higher cap).
• Employers can spend their levy funds on training their apprentice against an approved standard or framework. This includes either existing staff or new recruits as long as the training meets an approved standard or framework and the individual meets the apprentice eligibility criteria.
• The levy will be collected by HMRC through Pay As You Earn (PAYE) 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. Apprentice salaries will be included in this calculation. We are still awaiting clarification as to whether this applies to overseas salary costs, but the expectation is that it will.
• Apprenticeship Levy contributions will be held in new Digital Apprenticeship Service (DAS) account and credits can then be used to purchase training from registered providers. The service will also support employers to identify a training provider, choose an apprenticeship training course and find a candidate.
• Employers can be seek registration as training providers and then provide training in-house. To deliver training the employer would need to register as an approved provider and be subject to Skills Funding Agency (SFA) quality arrangements and Ofsted inspection.
• Employers will have a defined period (to be confirmed in June but likely to be between one and two years) to use their Apprenticeship Levy contributions. Unspent contributions will be reallocated to other employers with capacity for additional training (which can include employers not making contributions) but the Government has not yet confirmed exactly how this will work.
• In a new development the Government has confirmed it will apply a 10% top-up to monthly funds entering levy paying employers digital accounts, for apprenticeship training in England, from April 2017. All funds entering a levy payer’s account will be increased, so every £1 will be increased to £1.10 in value. This means that there will be an opportunity for employers to get more out the Levy than they pay in, although in reality any gains may be offset by additional salary/employment costs.
• There are two circumstances where levy-paying employers are likely to have to contribute additional funds: where the cost of the training they wish to buy is greater than the funding cap for a particular standard or framework; and where an employer has spent all of their levy contribution and all of their top-up and wishes to spend more on additional apprenticeship training
• The Government will be establishing a new independent Institute for Apprenticeships. It will regulate the quality of apprenticeships and will advise on setting funding caps, approving apprenticeship standards and assessment plans. It will be established in 2016 and will be fully operational by April 2017.

BIS will publish an employer guide, outlining the operating model for the levy in April 2016. We await further details from Government about the exact scope and definition of “apprentices”, and other issues relating to the possible impact on volunteers, VAT costs and grant-making charities. The Government has committed to keeping administration costs of the levy down, but there is recognition that there may be additional set-up costs faced by organisations (particularly those that do not run apprentice schemes currently).