Understanding the new apprenticeship levy: Your questions answered

The way apprenticeships are funded in the UK is changing. We explain what's happening and how it will affect your business.
21 September 2016

Read the latest on the apprenticeship levy and how Central YMCA can help you get prepared here.

You may have heard that apprenticeships – and the way they are funded – are changing. But what exactly is happening? And how will it affect your business? Here we answer some of your questions.

Why are apprenticeships changing?

In the July 2015 Budget, the government announced their target to reach three million apprenticeships by 2020. To reach this target the government are implementing a number of changes to the apprenticeship system, including how they are delivered and funded. 

The rationale behind the reforms is to put employers in control of apprenticeship training, improve apprenticeship quality and simplify frameworks.
However, there are still many parts of the reform system which remain unclear and untested.

So what are the changes?

On the 12th August announcements relating to the apprenticeship reforms were released by government. The announcements, originally expected in June, include details on:

What is the new apprenticeship levy?

To fund apprenticeships, the apprenticeship levy is being implemented. The apprenticeship levy will only be paid by businesses whose annual staff pay is in excess of £3 million. So that means less than 2% of UK employers will end up paying it.

This charge will be calculated at 0.5% of an employer’s pay bill and is to all intent and purposes a tax on business. However the money raised will be ring-fenced to pay for apprenticeships.

How will the levy work in practise?

Once the levy is calculated, businesses self declare this to the government. After they have paid it, the government then issues the money back to the business in the form of a voucher (the funds will show up in the businesses’ Digital Apprenticeship Service accounts). Businesses can then employ apprentices to value of this voucher (their levy payments) through apprenticeship providers such as Central YMCA’s operation YMCA Training.

Some apprenticeships are more expensive for the training provider to deliver (eg engineering apprenticeships), so the business decides what skills it needs and negotiates with the training provider.

One of 15 funding bands have been allocated (ranging from £1500 to £27000), which outline the maximum amount of levy funding that can be drawn down depending on whether the apprentice follows the older Apprenticeship Frameworks or the newer Apprenticeship Standards.

If you run out of your levy fund the government will help. For any additional apprentice a company takes on, the employer is liable for 10% of the cost, but the remaining 90% will be paid by the government.

When does the levy come into effect?

Quite soon! The first levy payments will be calculated in April 2017. By May 2017 businesses will be able to log onto their account in the digital apprenticeship service and see what funds (the voucher) they are entitled to spend on apprenticeships. It is expected that organisations will be able to start setting up their digital apprenticeship service account later on this year.

What if my company is too small to pay the levy?

If your business is below the £3 million threshold, don’t worry, you’ll still get help.

Non-levy paying employers can also negotiate a price for apprenticeships with the training provider. The employer is liable for 10% of this price, but the remaining 90% will be paid by the government. So as a business, you should work out what 10% you can afford based on the 14 funding bands.

However apprenticeships are known to be a great asset for businesses who are looking build the rights skills in their workforce.

More reading

The guidance, in full, can be found by clicking the links below:

Got more questions? Come to our special events

We've invited MPs, industry leaders and policy experts to take part in a panel discussion exploring the apprenticeship levy and more at Our 2020 Vision for Apprenticeships: Are You Ready?

The event takes place at both the Labour Party Conference (27th September 2016) and the Conservative Party Conference (5th October 2017) and is open to all, not just party members or those with a conference pass. Join us and get your questions answered.

At Central YMCA we can help your business with any questions around apprenticeships, including understanding your levy and sourcing the right candidates. Contact Cheryl Sharp, Head of Business Development, on 07341 072491 or cheryl.sharp@ymca.co.uk.

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