Helen Booth: Five things HR teams need to know about the Apprenticeship Levy

First announced in the 2015 Summer Budget, the Apprenticeship Levy was set to revolutionise the UK apprenticeship system.

It was introduced with the goal of improving apprenticeships standards and creating three million new apprenticeships in England by 2020. Pre-pandemic data from the government confirmed the levy had directly supported only around ten per cent of that number.

In the last year, apprenticeship numbers have continued to fall, and youth unemployment is at an all-time high, with many believing the system has failed to live up to the hype.

Of course, we can’t ignore the pandemic, which has significantly impacted apprenticeships in the UK, but with bold initial targets already falling short, commentary around the system seemed to be turning against the levy way before last year.

Whatever your view of the levy, we can’t afford to sit back and accept that things simply haven’t worked out. We need to work them out. And we need find ways to tap into the huge opportunities this funding pot offers large and small employers in all industries to open up more apprenticeship opportunities, encourage unemployed people back into work and, in the process, help rebuild Britain.

There is still a lot of confusion surrounding the Apprenticeship Levy, but large employers and HR professionals have a crucial role to play in ensuring it is used effectively. And that’s why it’s hugely important they have a clear understanding of how the levy works.

What is the Apprenticeship Levy?

The Apprenticeship Levy is a tax on employers which can be used to fund essential training and development through apprenticeship programmes. It currently only applies to employers with an annual wage bill of more than £3million, which equates to about two per cent of employers in the UK.

Currently it:

• Applies to employers with an annual pay bill of more than £3 million
• Can only be used to fund apprenticeship training
• Is charged at 0.5 per cent of an employer’s total payroll
• Is collected monthly through PAYE

Here’s a short summary of the five key things you need to know about the levy

1. The Apprenticeship Levy can only be spent on training employees through apprenticeships

The aim of implementing the levy was to put apprenticeship training directly into the hands of employers. As part of this, the government outlined a set of employer rules, which defined what levy funds could and couldn’t be used for. You can find these here.

Put simply, the levy can be used to help businesses take on new employees through apprenticeship programmes, as well as training and upskilling existing employees. There is no restriction on the level or type of qualification or the age of the apprentice.

There are also things employers cannot currently use levy funding for. They are:

• Travel or accommodation costs for apprentices
• Enrolment
• Apprentice wages
• Personal protective clothing and safety equipment needed by the apprentice
• Development of original teaching materials
• Off-the-job training delivered by self-directed distance learning
• Additional training outside of the apprenticeship programme
• Managerial time

Why not check to see how any Apprenticeship Levy funding is being used in your business?

2. Levy funds don’t last forever

As a way of encouraging organisations to use their levy funds more quickly, the government set an expiration date on them. If levy funds aren’t used within 24 months, they are passed back to the Treasury.

And the Treasury has benefitted from this it seems, with reports that more than £1bn of apprenticeship levy funding has been left unused over the past four years.

This has, no doubt, been worsened by the pandemic. However, if we think about what that amount of money could achieve to support unemployed people back into work following the impacts, we’ve all experienced over the last 18 months or so, it makes it all the more necessary to find ways to do better.

It’s worth checking what levy funds you may have, and if you have a pot available, when it could be due to expire.

3. Large businesses can transfer their levy funds

Making the most of unspent levy funds is an issue that needs addressing, because it could potentially open up vast opportunities for SMEs across many sectors, including the trade sector in which we specialise.

Some large employers are already redistributing their unspent levy to small businesses, in their existing or other markets, as well as to providers which can be used to fund training in other organisations.

Employers are able to transfer 25 per cent of their annual unspent levy funds to as many employers as they choose, and this could be used to fund the cost of training an apprentice – or many if there’s enough in the pot.

To make it easier for employers to transfer surplus funds, the government is due to implement a new online system in September that will allow all businesses to see any levy pledges on a public website and apply for funding to pay for 100% of their apprenticeship training and assessment costs (up to the funding band maximum).

Many big employers have already donated (or redistributed) their unused levy and it can often be a central pillar of their corporate social responsibility (CSR) or environmental, social and governance (ESG) objectives.

For larger employers, it is a fantastic opportunity for them to ‘do their bit’ to support the country’s recovery, strengthen and support their networks, and create new job opportunities – and hope – for unemployed people.

When this happens, the results can be incredible, and we’ve seen this first-hand at the HomeServe Foundation.

Make sure you keep an eye out for the government’s new online portal for redistributing Apprenticeship Levy funding later this year.

4. Levy-paying businesses can access additional funding

Earlier this year, the government announced it would be increasing apprenticeship incentives to the highest level they have ever been. This now means that employers, both small and large, can receive up to £4,000 for each apprentice they hire depending on the age of the apprentice.

Levy paying and non-levy paying employers will now receive £3,000 for new apprentices of any age who have an employment start date of 1 April 2021 to 30 September 2021. At the time of writing this article, there are no concrete decisions from government on incentive funding being extended beyond the end of September this year, but Apprenticeships Minister Gillian Keegan recently said they had ‘no plans’ to do so.

The current £3,000 incentive payment is in addition to the £1,000 employers already receive for hiring an apprentice:

· Aged 16 to 18 years old

· Aged under 25 with an education, health, and care plan or who has been in the care of their local authority

Act quickly if you want to take advantage of the incentives currently available of up to £4000.

5. The Government will top up your levy funds

Levy-paying employers can receive a further 10 per cent top-up from the government, which are automatically added to the funds in their apprenticeship service account.

So, for every £10 paid into the account to spend on apprenticeship training in England, the employer’s account is credited with an additional £1.

If you don’t have enough funds in your levy pot to cover the cost of training, then the government will pay 95 per cent of the outstanding balance and you, as the employer, will be responsible for the remaining five per cent. This is up to the funding band maximum allocated to each specific apprenticeship.

Make sure you take advantage of the government’s top ups available to you.

What else needs to be done?

Many are calling for a complete reform of the Apprenticeship Levy, and some are branding the current system as a ‘failure’. Other have suggested that unspent Levy funds should be used to supplement, or even pay for an apprentice’s wages, however Apprenticeships and Skills Minister Gillian Keegan recently said on the ‘All About Apprenticeship’ podcast that this was not likely to happen.

In my opinion, it’s more important that we are realistic about the tangible changes we can make now to improve the current levy system.

Firstly, it is vital that we help firms both large and small to better understand how the levy works, so it is important the government finds ways to make the system simpler to navigate, make funding easier to access and use, and that they are more transparent about where unspent levy funds are being used.

The ability to transfer levy continues to be a positive step forward and the new online portal has the potential to be a significant improvement but, secondly, we need more flexibility in how the apprenticeship levy can be used. Increasing the amount employers can transfer and making the process easier would help take this even further.

And on a wider level, we need to continue to create more engagement and awareness among small businesses, and back that up with locally led practical support and advice so they better understand the support available to them, including levy-transfer.

Connecting small firms with large employers will help open more opportunities for funding to be utilised where it is needed most.

Apprenticeships are such an important route to employment and through this kind of practical, on-the-job training we are not only increasing our talent pool but also helping to tackle the skills shortages we’re experiencing in many industries now and in the future.

There’s no doubt that opening up access to levy funding will encourage more unemployed people to find new careers, and that’s important because they’re the ones who have been hit hardest by the pandemic