Apprenticeship levy: recent changes and what the future holds

Apprenticeship levy: recent changes and what the future holds

The government has introduced greater flexibility in the levy system, but does it go far enough?

Apprenticeship levy: recent changes and what the future holds

Apprenticeships are an attractive option for young people and employers alike, with innumerable benefits for both parties.

Research from Grant Thornton shows that 77% of young people believe apprenticeships offer good career prospects and almost half surveyed said that apprenticeships and university are equally valuable.

For employers, apprenticeships offer an opportunity to foster young talent, upskill their workforce and imbue the company with fresh energy. Data from the National Apprenticeship Service revealed that 92% of companies with apprentices believe this leads to a more motivated and satisfied workforce and 80% have seen a significant increase in employee retention.

Despite the scores of benefits, apprenticeships have seen a 25% drop in the first two quarters of the year, according to the Department of Education.

Although the apprenticeship levy celebrated its first birthday in April of this year, many businesses, particularly on the smaller end of the spectrum, have criticised the levy system for being complex and burdensome, and have called for change.

In the Spring Statement the Chancellor acknowledged the potential obstacles for smaller businesses and pledged £80m funding to support them taking on apprentices, and the system has seen some reform in recent weeks.

What are the recent changes to the apprenticeship levy?

As of 6 April 2017 employers with a pay bill over £3m annually, about 2% of employers, are obligated to pay the apprenticeship levy. This comprises of 0.5% of the pay bill being paid through HMRC’s PAYE process.

Under new government changes introduced this week, from July levy-paying employers will be able to make transfers of up to 10% to as many other employers as they choose. Previously, the transfer was only permitted to one other employer.

The option to pass on a portion of the levy allows companies to support training in smaller companies, such as those in their supply chain who may not otherwise be able to fund apprenticeships.

The 10% allowance is calculated from the total amount of levy declared during the previous tax year, with the English percentage applied, plus the 10% government top-up payment.

Employers receiving the funds will only be able to use them for new starters beginning after 1 May 2018.

Employer checklist

The government has also published guidelines for employers taking on apprentices, including a checklist of considerations. A key point to consider is whether an employer can offer a genuine job for the apprenticeship. The role must give apprentices the opportunity to develop their skills and knowledge and they must be given appropriate support and supervision.

The employer must also verify the eligibility of the apprentice, who must have the right to work in England and should log at least 50% of their working hours in the country. The apprenticeship must be started after the last Friday in June of the academic year in which they have their 16th birthday.

With regards to payment, employers will have to select a main provider and negotiate the total cost for the apprenticeship. If the price negotiated exceeds the maximum funding band, the employer must pay the difference.

Other responsibilities outlined in the document relate to paperwork, such as putting together an apprenticeship agreement, a commitment statement and providing evidence of weekly hours.

Future of apprenticeships

It remains to be seen whether the government’s recent changes will go far enough to reform the levy system and encourage small businesses to take on apprenticeships.

Some businesses have called on the government to increase the percentage allowed to be transferred from 10%, which may be considered down the line.

As apprenticeships are mutually beneficial, working through teething problems with the current funding system will no doubt increase their appeal.

MP Anne Milton, the minister responsible for apprenticeships, said: “It’s fantastic to see so many businesses taking advantage of the opportunity that the apprentice levy provides. As well as kick starting their apprenticeship programmes, business is now recognising the benefits an apprentice brings to the work place with enthusiasm and new ideas.”

“We want to keep improving apprenticeships for everyone and I am delighted that we are now extending the flexibility of the apprenticeship levy.”

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