Apprenticeship levy and construction: your questions answered
- What is the apprenticeship levy?
- Who will need to pay the apprenticeship levy?
- How many construction firms will need to pay the apprenticeship levy?
- Will construction firms need to pay both the apprenticeship levy and the CITB levy?
- How will the apprenticeship levy be collected?
- How is the levy payment calculated?
- What will employers get back from the levy?
- What can levy funds pay for?
- Who sets the cost of the training?
- How will companies that don't pay the apprenticeship levy fund apprenticeships?
- How will training for apprentices aged 16 to 18 be funded?
- Will there be any other Government payments?
- Can an employer transfer funds in their digital account to another employer or training provider?
- How will the levy work in Scotland and Wales?
- How will CITB support employers on apprenticeships?
- What happens if an employer starts an apprentice before the changes are introduced?
1. What is the apprenticeship levy?
The government is introducing the apprenticehip levy. It will replace all taxpayer funding of apprenticeships for companies of all sizes.
It starts from April 2017 at a rate of 0.5% of an employer’s wage bill, and will be paid through Pay As You Earn (PAYE).
2. Who will need to pay the apprenticeship levy?
All firms receive an offset allowance of £15,000, equivalent to 0.5% on a payroll of £3 million. Any employer with a payroll above this will be liable to pay the levy.
Example 1: an employer who would pay the levy
An employer with an annual pay bill of £5 million:
- Levy sum: 0.5% x £5,000,000 = £25,000
- Allowance: £25,000 – 15,000 = £10,000 annual payment
Example 2: an employer who would not pay the levy
An employer with an annual pay bill of £2 million:
- Levy sum: 0.5% x £2,000,000 = £10,000
- Allowance: £10,000 – £15,000 = £0 annual payment
Where companies are connected, only one £15,000 allowance can be shared between them. The division of the allowance must be decided at the beginning of the tax year. So if during the year an employer becomes connected to a company which already pays the levy, the first employer would immediately become liable to pay on their full payroll.
Connected companies may also pool their levy funds to pay for apprenticeship training.
3. How many construction firms will need to pay the apprenticeship levy?
Based on current data, about 1% of employers registered with CITB (750 companies at group level) will need to pay it.
However, the apprenticeship reforms will impact on construction employers of all sizes.
4. Will construction firms need to pay both the apprenticeship levy and the CITB levy?
It is for the construction industry to decide what type of support they want for skills and training from CITB in the future.
To help with this, CITB has set up a new employer-led Levy Working Party to scope the options for how the CITB levy could work alongside the apprenticeship levy, towards a possible new CITB Levy Order for 2018.
This means that for one year only (financial year 2017 to 2018), companies with a payroll over £3 million, who are in scope to the CITB levy, will need to pay both levies.
CITB has agreed a temporary transition package with industry for firms that will pay both levies in the 2017-18 financial year. Under this arrangement, these firms will be able to claim CITB funding at an enhanced rate, capped at their level of apprenticeship levy contribution.
5. How will the apprenticeship levy be collected?
Each month, the apprenticeship levy will be collected through the PAYE system with Income Tax and National Insurance Contributions. Single employers with multiple PAYE schemes will have only one allowance.
Levy raised against the payroll of their employees who live in England will be available to fund apprenticeships.
Funds raised against employees who live in Scotland, Wales or Northern Ireland will go into general taxation.
6. How is the levy payment calculated?
All employers have an offset allowance of £15,000 (equal to 0.5% of £3 million).
Employers with a monthly pay bill under £250,000 (equivalent to a £3 million annual pay bill) will not pay the apprenticeship levy at all.
The £15,000 is divided into 12 monthly allowances of £1,250:
- If 0.5% of a month’s pay bill is higher than the £1,250 allowance, the employer will pay the apprenticeship levy.
- If 0.5% of the monthly pay bill is under £1,250, the unused balance of the allowance will be carried to the next month.
This means that some companies might pay the levy only in months where payroll is higher than usual.
However, if previous month's pay bills were below the £1,250 allowance, the unused balance would be carried forward and deducted from payments due in the higher payroll month.
7. What will employers get back from the apprenticeship levy?
Employers in England will be able to reclaim their apprenticeship levy contributions as digital vouchers to pay for training apprentices.
This digital voucher system will not apply in Scotland, Wales and Northern Ireland.
The government has announced that unspent funds in an employer’s digital account will expire after 24 months. For example, funds entering the account in May 2017 will expire in April 2019, unless the employer uses them.
The digital account works on a ‘first-in, first out’ basis, so payments automatically draw from the funds which entered the account first.
Employers who pay the apprenticeship levy will also get a 10% top-up from the government to their total monthly contributions in England. So for every £1 an employer pays in, they can draw down £1.10 to spend on apprenticeship training through their digital account.
Connected companies can pool their funds into a single levy to pay for apprenticeship training. But employers not connected to the group (eg separate companies in the supply chain) cannot join the pool.
8. What can apprenticeship levy funds pay for?
Funds in the digital account can pay for apprenticeship training and assessment (with an approved provider and assessment organisation, up to its funding band maximum).
These funds cannot pay for wages, travel or subsidiary costs, managerial costs, work placements, traineeships, or the costs of setting up an apprenticeship programme.
Employers can use digital account funds to progress employees into a higher level apprenticeship, or an equal or lower level apprenticeship where this teaches a new set of skills.
Example 3: an employee who wants to start a higher level apprenticeship
An employer could use their apprenticeship funds to pay for an employee, who already holds a level 2 plant maintenance apprenticeship, to take a level 3 apprenticeship in this occupation.
If an employee wants to learn new skills that are different to their existing qualifications, at the same or lower level, an employer can use their digital account funds to pay for this.
Example 4: an employee who wants to learn new skills through an apprenticeship at a lower level than their existing training
An employer could pay for an employee who already has a level 3 apprenticeship in wood occupations to undertake a level 2 wood machining apprenticeship.
9. Who sets the cost of the training?
All employers must choose a training provider and negotiate the cost of the training.
Government funding caps will be set on each apprenticeship. This is the upper limit to which the government funding can be used to pay for an apprentice’s training.
The proposed 15 new funding bands range from £1,500 to £27,000. You can find a full breakdown of the provisional funding bands for construction apprenticeships in our apprenticeship levy factsheet (PDF, 274 KB).
The new bands replace the old apprenticeship framework rates, which varied by age.
The new bands have been set based on the current adult rate, with an uplift applied to science, technology, engineering and mathematics (STEM) occupations. These include construction apprenticeships.
There will be a 40% uplift to funding for level 2, and 80% uplift for level 3. This applies to apprenticeship frameworks, but will not apply to standards. Funding rates for apprenticeship standards have not been set yet.
Government funding, either through the apprenticehip levy digital account or co-investment for non-levy payers (detailed below), cannot be used to pay for apprenticeship costs above the funding cap.
Example 5: Funding caps on apprenticeship costs – apprenticeship levy payers
Employer A (who pays the apprenticeship levy) trains an apprentice in Y occupation. The Government has set the funding cap for this training at £5,000 per year, but the employer negotiates a cost of £4,000 with the provider.
The cost is within the funding band limit, so £4,000 will be deducted from the employer’s digital account over the lifetime of the apprenticeship.
Employer B (who pays the apprenticeship levy) trains an apprentice in Y occupation, which is again set a funding cap of £5,000. The price negotiated with the training provider is £6,000, so over the funding cap.
This means the £5,000 will be deducted from the employer’s digital account over the lifetime of the apprenticeship, and the employer will be responsible for paying the remaining £1,000.
If apprentice training costs are above the funding cap, the employer cannot use apprenticeship levy funds to make up the difference. They must fund this additional cost separately.
If a company has used all the funds in its digital account, any further training will be funded through the ‘co-investment’ model explained below.
However, government co-investment cannot be used to cover training costs above the funding cap.
10. How will companies that don't pay the apprenticeship levy fund apprenticeships?
Employers that don't need to pay the apprenticehip levy will not need to use digital vouchers to pay for apprenticeship training and assessment until 2018 at the earliest. For now, the government will pay training providers directly for these employers.
However, these employers will still need to choose a training provider from the registered list, negotiate the cost of the training and adhere to the funding caps for different qualifications, in the same way as larger firms that pay the apprenticeship levy.
Employers that don't pay the levy must contribute 10% of funding towards the cost of their apprenticeship training. This is called ‘co-investment'.
The employer will make an initial payment to the training provider. The government will then pay its share up to the funding cap limit for that apprenticeship.
The apprenticeship levy is expected to raise £2.5 billion per year, which will be used for all government contributions to apprenticeship training in England.
Example 6: Co-investment funding – employers who do not pay the apprenticeship levy
Employer A (who does not pay the apprenticeship levy) trains an apprentice in Y occupation.
The funding cap for this training is £4,000 per year, but the employer negotiates a cost of £3,000 with the provider.
The cost is within the funding band limit, so the £3,000 will be made up of an employer contribution of £300 (10%) and a government co-investment of £2,700.
Employer B (who does not pay the apprenticeship levy) trains an apprentice in Y occupation. The funding cap for this occupation is £6,000 per year.
The price negotiated with the training provider is £7,000, so £1,000 above the funding cap limit.
As the training cost is above the funding cap limit, the employer will pay £600 (10%) of the £6,000 of training within the funding cap limit, and the government will co-invest £5,400. The employer is responsible for the remaining £1,000 that is above the funding cap.
11. How will training for apprentices aged 16 to 18 be funded?
To help employers adjust to the new funding levels as they move from apprenticeship frameworks to new apprenticeship standards, the government has announced an additional 20% increase in funding for 16 to 18 year olds.
This will apply to funding for apprenticeship frameworks only. Funding levels for apprenticeship standards will be set through the trailblazer process. This additional money will be provided to training providers directly, rather than through an employer’s digital account.
The training provider will also receive a £1,000 incentive. This reflects the government’s commitment to getting more young people on apprenticeships and supporting employers with additional costs.
The government proposes to further incentivise employers that take on a 16 to 18 year old, with a £1,000 payment – paid at three months and 12 months into the apprenticeship.
If a small employer (those with fewer than 50 employees) takes on an apprentice aged 16 to 18, the employer will be exempt from paying the 10% co-investment. The training costs will be fully covered by the government as long as they are within the funding cap.
12. Will there be any other government payments?
To pay for the additional support required to take on an apprentice aged 19 to 24 who has previously been in care or who has a Local Authority Education, Health Care Plan, the government will provide £1,000 to an employer and £1,000 to a training provider.
To support apprenticeships in the most deprived areas, there will be a ‘disadvantage uplift’ of £600 for the 10% of most deprived areas, £300 for the next 10% and £200 for the next 7%. Again, this will apply to frameworks only and is a government grant, not from the digital account.
To support an apprentice with a learning disability, learning providers will be able to claim up to an additional £150 a month from the government. This amount could be increased if a greater level of learning support is needed.
For apprentices who do not have the required minimum standard in mathematics and English, the training provider will be able to claim an additional flat rate of £471 from the government to provide this qualification.
13. Can an employer transfer funds in their digital account to another employer or training provider?
From 2018, employers will be able to transfer up to 10% of the levy funds in their digital account each year to another employer with a digital account. This will allow employers to support their supply chain or other employers in their sector or community.
Employers will also be able to transfer up to 10% of the annual value of funds in their account to an Apprenticeship Training Agency (ATA). An ATA recruits, employs and arranges training for apprentices on behalf of employers.
The amount of funding that can be transferred will be reviewed by employer groups, including the Confederation of British Industry (CBI), Federation of Small Businesses (FSB), the manufacturers' organisation EEF, and the Charity Finance Group (CFG).
14. How will the levy work in Scotland and Wales?
The apprenticeship levy applies to employers across the UK.
But only funds raised against employees whose home address is in England will appear in the digital account. Funds can only be spent on apprentices whose normal place of work is in England.
Scotland and Wales will receive funds proportionate to the additional spending in England through the Barnett Formula. The devolved administrations in Scotland and Wales will decide how these funds will be used.
For companies that work across different nations, the amount of levy available to spend through the digital account in England will reflect the proportion of the pay bill paid to employees living in England.
This assessment will be made in early 2017, based on the data HMRC already holds on the home address of employees.
- If 100% of the pay bill is in England, 100% of the levy payment is in the digital account.
- If 80% of the pay bill is in England, 80% of the levy payment is in the digital account.
Employers will be able to use their digital account or government co-investment funds to train an apprentice whose main place of work is in England. This is regardless of whether the apprentice lives in Scotland or Wales.
The government is working with the devolved administrations on reciprocal funding arrangements for employees who live in England, but who may work elsewhere in the UK.
[The Barnett Formula is a mechanism used by the Treasury in the UK to automatically adjust the amounts of public expenditure allocated to Northern Ireland, Scotland and Wales to reflect changes in spending levels allocated to public services across Great Britain.]
15. How will CITB support employers on apprenticeships?
The amount of grant support we provide is likely to increase.
We aim to help employers meet the new costs of training an apprentice, and to pay grants quickly to help employers who need to make an initial payment to a training provider. We will work with you to develop the details of the support.
We will also help employers, especially smaller companies, to negotiate with training providers to get the best rates.
We will continue to support the development of relevant apprenticeship standards for construction and to quality assure the training on offer for the industry.
16. What happens if an employer starts an apprentice before the changes are introduced?
Employers that start an apprentice before April 2017 will receive funding under the current system, and that funding will continue for the duration of the apprenticeship.