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Apprenticeship Levy 2016 update

The Government published the first of four pieces of guidance on how the apprenticeship levy will work when it is introduced in April 2017 on 21st April. The BBPA continues to work with People 1st on the implementation levy and has summarised the key points from a more detailed note below.


The levy will be charged at a rate of 0.5% of an annual pay bill. There will be a levy allowance of £15,000 per year to offset against the levy that must be paid. This means people will only pay the levy if their pay bill exceeds £3 million in a given year. Employers will access the levy via the Digital Apprenticeship Service (DAS) and online tools for them will be available via the DAS over the next year. Employers will be able to register to create a digital account from January 2017 and they will be able to familiarise themselves with the service. Those that do not pay the levy will not need to use the DAS to pay for apprenticeship training and assessment until at least 2018. Employers using the DAS will only be able to purchase training and assessment from organisations on the government’s Register of Training Organisations’. Employers are expected to negotiate a price with the provider and the agreed amount will be deducted from the digital account on a monthly basis.

Further issues

Levy calculation: The pay bill will be based on the total amount of earnings, subject to Class 1 secondary National Insurance contributions (NICs). Earnings will include wages, bonuses, commissions, and pension contributions that employers pay NIC on. Employers will calculate, report and pay the levy to HMRC through PAYE alongside tax and NICs. Employers who have calculated that they will pay the levy will need to declare this, and include it in their usual PAYE payment, by the 19th of each month. It is clear that employers will need to administer their levy payments, which will be a monthly activity. Funds will appear in their Digital Apprenticeship Service (DAS) account monthly, a few working days after pay bills and levy contributions to HRMC for the previous month have been confirmed.

The first time employers will see levy funds in their account, once the system is introduced in April 2017, will be May 2017. The government will apply a 10% top-up to the funds available for spending on apprenticeship training in England. They will apply the top-up monthly, at the same time as the funds enter DAS accounts.

Use of funds: The levy funds will expire 18 months after they enter a digital account, unless they are spent on apprenticeship training. This will also apply to any top-ups in digital accounts. The account will work on a first-in, first-out basis, either through payment or expiry. Once a provider is selected and the apprenticeship has started, monthly payments will automatically be taken from the employer’s DAS account and sent to the provider, spreading the cost over the lifetime of the apprenticeship.

Employers will not need to have the entire cost of the apprenticeship in their digital account prior to its commencement, due to the monthly payment schedule. If, over the course of the apprenticeship, there is not a sufficient levy fund to pay for the training and end assessment, then the employer will need to top-up the fund on a monthly basis. The provider will inform the employer of the amount that they need to pay and the employer will make the payment directly to the provider.

£15,000 Allowance: Employers will have an offset to the levy of £1,250 per month (to remove ‘small’ employers from the levy). Any unused offset can be moved between months to ensure that the £15,000 annual offset is utilised. It is not yet clear how this would affect non-levy payers who may pay more in the early part of the financial year so that their levy contribution would be over the offset limit for four months, for example, but not over the course of the whole year. When a group of employers are connected, they will only be able to use one £15,000 allowance.

National employers: The Government intends to use HMRC-held records to determine the geographical location of employees. The levy would therefore apply to all staff but apprenticeship training funds would only be allocated on the basis of those staff based in England.

Supply chain allocation: Despite calls from employers the Government has said that employers will not be able to use the levy within their supply chain, at least in the first year. This will be reviewed.

Framework or standards: Until 2020 apprenticeships can start either on the existing ‘frameworks’ or the new ‘standards’. From 2020 the frameworks will cease to exist.

There will still be incentives for employers not paying the levy to employ 16-to-18-year olds and those with additional needs. It would appear from the guidance that the completion incentive will not be available. Further clarification can be expected in June when draft funding rules and funding rates become available.

Guidance to come

June 2016: provisional funding bands, which will set the maximum amount of funding available for each apprenticeship from April 2017; the provisional level of government support that will be available towards the cost of apprenticeship training if you aren’t a levy-paying employer, from April 2017; the provisional level of extra payment you can get for hiring 16-to-18-year-old apprentices, from April 2017; the provisional amount that will be paid for English and maths training for apprentices who need it, from April 2017; eligibility rules that set who you are able to spend apprenticeship funding on, and where; and who can provide apprenticeship training, and how you can set up your organisation to deliver apprenticeship training

October 2016: the final levels of funding, government support, 16-to-18 payments, and English and maths payments for apprentices starting from April 2017; and full, draft funding and eligibility rules

December 2016: final detailed funding and eligibility rules; and further employer guidance from HM Revenue and Customs (HMRC) on how to calculate and pay the apprenticeship levy

People 1st have worked with BIS to publish the apprenticeship assessment plans for a Commis Chef and Hospitality Team member. We understand that the hospitality and retailer plans are amongst the first (if not the first) to have a genuinely employer-led model to protect the on-going quality of apprenticeships.

For further information contact David Sheen