Apprenticeship Reform

The UK Government believes there is a significant skills gap when viewed against other developed economies. Equally, employers feel that existing Apprenticeship frameworks are not fit for purpose and industry requirements.

The Government has launched a new reform and set a target of creating 3 million new apprentices by 2020. To help achieve this target, they want employers to contribute towards their Apprenticeship training budget to access government funding.

What is changing?

Employers will no longer access funding via their approved training provider or College Funder. Instead, the employer will use a voucher system through the Digital Apprenticeship Service (DAS).

The current Apprenticeship ‘Frameworks’ are also being redesigned to a set of ‘Standards’, defined by employer groups and recognised by industry. This is known as Trailblazers.

Who will reform effect?

Reforms affects any employer, training provider or assessment organisation that is involved in the delivery of Apprenticeships. There will be two systems running side-by-side from April 2017, one for levy paying employers (an estimated 25,000) and one for smaller employers (an estimated 100,000). Some features of the system will be the same; some will be different.

Apprenticeship Levy Paying Companies

From April 2017, employers with a total pay bill of over £3m will automatically pay a 0.5% ‘levy’ to fund their Apprenticeship training.

The first time eligible employers will have to declare their liability to HMRC will be in May 2017 for levy due on their April payroll and will see funds in their account from 22nd May.

This contribution will be offset by a £15,000 allowance.

The levy will be collected by HMRC each month, directly via PAYE processes.

No employer, whether they train apprentices or not, is exempt from the levy. This includes charities, public sector organisations, local authorities and the education sector.

Employers who already pay into a levy system, such as CITB, will not be exempt.

How will the Levy work in reality?

Below is an example of how a company whose wage bill of £4m, will contribute towards the levy.

  • 0.5%levy sum x£4m wage bill = £20,000 levy
  • £20,000levy –£15,000 government allowance = £5,000 payment

Employers in England who pay the levy and are committed to apprenticeship training will also receive a 10% top-up, directly into their DAS account. That means for every £1 that enters an employer’s digital account, they will actually receive £1.10.

What happens to an employer’s Levy contribution?

It has been suggested that 100% of the value of the monthly levy deduction will go into an employer’s DAS account. Employers should see funds appear in their digital account monthly, a few working days after confirming their pay bill and levy contribution to HRMC for the previous month.

Applying this same wage bill to a monthly scenario can be seen below:

  • May 2017*
  • 0.5%levy sum x £500,000monthly wage bill = £2,500 levy
  • £2,500levy – £1,250 governmentallowance = £1,250 payment
  • £1,250payment + £125Government Top-up = £1,375 DAS Spend

What can the Levy be used for?

The Levy can be spent on Apprenticeship Training and the associated costs. This can be used to fund things such as recruitment and CPD training to support the Apprentice but cannot be used towards their salary.

Who can deliver an Employer’s training?

The DAS will provide details of training providers that can offer the desired Apprenticeship. The system will enable virtual payments to providers that are delivering Apprenticeships for the employer. This will allow the employer to approach the provider(s) to negotiate funding, contributions and payment schedule.

Paying for an Apprenticeship?

Once an employer has selected their Framework or Standard, monthly payments will be taken out automatically and sent to the training provider over the lifetime of the Apprenticeship. It is proposed that 20% of the total cost is held back and taken at the end of the Apprenticeship for end point assessment. The limit on how much an employer can spend on an Apprenticeship Framework or Standard will be determined by 15 funding bands.

If an employer doesn’t spend their levy, what will happen to it?

Employers will be given 24 months from April 2017 to use the levy. If they don’t use it in that time, it will be given to other employers to use. For example, funds which enter an employer’s account in September 2017 will expire in March 2019. The digital account will let an employer know in good time when funds are due to expire.

What happens if an employer has used all, or has insufficient funds in their digital account?

Employers who pay a small levy or invest in a lot of apprenticeship training may find that there are insufficient funds in their digital account to cover the cost of training. In these circumstances, it is proposed that the Government pay 90% of the additional costs incurred with the employer contributing 10% directly to the training provider.

Non Levy paying companies?

Employers with an annual wage bill of less than £3m will not pay the levy. Instead, Apprenticeship Standards and Frameworks will be jointly funded by employers and the Government. This is called Co-Investment.

Is there a payment process for recruiting an Apprentice?

The provider and employer decide on a payment schedule and put this in a written agreement. This acts as the contract for delivery between the two partners and should be legally watertight. All employer contributions must be in cash and not in kind.

Can an employer gain Government funding to upskill existing staff?

Employers should be able to use funds in their digital account (levy paying) or access Government co-investment (non-levy) to train an individual if the level of Standard or Framework is higher than their current set or qualifications or at a lower/equivalent level if the content of the training is materially different from any prior training they have received.