D-Day for the apprenticeship levy is drawing near, with the government’s controversial tax due to take effect a week today (6 April).
So how do the reforms stack up for employers in the construction industry?
Flashback to the summer Budget of 2015 and the government’s announcement of the levy. This was intended to deliver three million apprenticeship starts by 2020.
The construction sector, which has a long tradition of apprenticeships and with pre-existing levy arrangements in place (such as that run by the CITB) was identified as being a particular beneficiary of the levy.
Complex funding arrangements would undergo reform and employers would have greater control over selecting and funding apprenticeship training.
After a lengthy consultation process, many of the key features of the policy are now in place. These are:
- UK employers with a “paybill” (ie that part of the wage bill subject to Class 1 National Insurance Contributions) of more than £3m in a tax year will be liable to pay a levy equivalent to 0.5 per cent of that total paybill.
- Each tax year, an allowance of £15,000 will be made available to employers to offset against the levy – but this will need to be shared between a group of companies where the employer is part of that group.
- The levy is payable monthly to HMRC through the PAYE system, together with income tax and national insurance contributions.
Notionally, the levy is going to be used to provide a source of funds retained in specified digital accounts, available to employers to spend on “approved” apprenticeship programmes.
The intention is that even where employers are not paying the levy because they are below the £3m threshold, they should be able to access funds for apprenticeships.
Provided they make a 10 per cent contribution, government can provide the remaining 90 per cent, subject to specified thresholds.
Reaching the limits
There are a number of limits on the new scheme:
- First up, it is intended to apply to new apprenticeships (ie post 1 May 2017) only. Older apprenticeships will be subject to pre-existing arrangements. Businesses paying into existing levies will have to maintain these, at least for 2017/18, in addition to paying the new levy.
- Employers with existing arrangements (including the CITB levy arrangement) for financial year 2017-2018, may find themselves having to pay into both old schemes and the new levy.
- The scheme applies to all UK apprenticeships but at present access arrangements have only been made clear in relation to English apprenticeships. It will be for the devolved administrations (Scotland, Wales and Northern Ireland) to identify their own arrangements to employers (hopefully sooner rather than later).
- Funds can be used for specific purposes only: apprenticeship training and assessment rather than wages, travel or administrative costs. Costs of providing training are being simplified by “bands” which have regard to current levels being paid under existing arrangements.
- Where funds are drawn down by employers, a 10 per cent top-up on the funds will be provided by government.
- There is a “use it or lose it” approach here – funds will expire within 24 months if not applied by employers.
The government forecasts that fewer than 2 per cent of employers will pay the levy, and therefore, the majority of employers will benefit from “generous” government support to fund apprenticeships.
It remains to be seen, however, the amount by which funding exceeds the levy paid, and whether the revision of transitional arrangements, uplifts and the like, will have any impact.
Given the current industry-wide skills shortages and potential impact of Brexit on non-UK nationals in the workforce it is hard not to feel that this is a drop in the ocean of the problems that need to be faced up to.
What should businesses be doing now?
If nothing else, now is the time to re-assess what your organisation is currently doing on apprenticeships, what levy schemes are currently being paid into, what the potential exposure (if at all) might be to payment of the levy and what training apprenticeship aspirations might be met.
It is worth remembering that the levy is not focused solely on bigger main contractor organisations with current apprenticeship programmes, but SME subcontractors and suppliers, too, which may not presently employ apprentices or else believe that the chance of being able to do so is far too difficult and financially challenging.
“The majority of employers will benefit from “generous” government support to fund apprenticeships”
There are a number of private apprenticeship trainers and organisations, such as the CITB, who are waiting to provide advice to organisations as to how to make best use of available funds – including seeking to take advantage of the relevant top-up arrangements.
In principle, if used well, these funds could provide a real kick-start for a business that is not yet properly engaged with apprenticeships, or a valuable supplement to existing programmes.
But as far as the bigger picture concerning the industry’s overall skills shortage is concerned, that is probably a different story altogether.
Jon Hart is a partner, PFI and infrastructure, at Pinsent Masons
Apprenticeship levy: All you need to know as fee kicks in