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  • 6 Apr 2017
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Need to know: apprenticeship levy FAQ

Understanding the funding mechanism for training can be a complex affair - so how does the government's new apprentice training levy fit into the equation?

What is the apprenticeship levy?

The apprenticeship levy is a new levy introduced by the government on all employers with a pay bill of more than £3m per year. It is intended to encourage employers to invest in apprenticeships, to increase the quality and quantity of apprenticeships across the whole of the economy. 

The Levy was announced in the 2015 Summer Budget and will come into force in April 2017 at a rate of 0.5% of an employer’s wage bill, paid through PAYE. It is expected to raise £3bn a year by 2020.

How many construction firms will need to pay the apprenticeship levy?

Based on current data, about 1% of employers registered with CITB, about 600 companies will need to pay. However, the apprenticeship reforms will impact on construction employers of all sizes. 

What will employers get back from the levy?

Employers in England will be able to reclaim their contributions as digital vouchers to pay for apprenticeship training.

This voucher system will not apply in Scotland, Wales and Northern Ireland. The devolved governments in those countries will receive additional funds in proportion to the amount spent on training in England.

Employers that pay the apprenticeship levy will also receive a 10% top-up from the government towards 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.

The main details re funding are as follows:

  • 100% of training costs will be paid by government for employers with fewer than 50 employees who take on apprentices aged 16 to 18 years old. This will also apply to smaller employers who take on 19-to-24-year-olds who were in care, or 19-to-24-year-olds with an Education and Health Care Plan.
  • £1,000 each from government to employers and training providers who take on 16-to-18-year-olds and 19-to-24-year-olds who were in care or who have an Education and Health Care Plan.
  • Providers that train 16-to-18-year-olds on apprenticeship frameworks will be given an additional cash payment equal to 20% of the funding band maximum to help them to adapt to the new, simpler funding model.
  • Providers that train apprentices from the most deprived areas on apprenticeship frameworks will continue to receive additional funding from government. More than £60m will be invested in supporting the training of apprentices from the poorest areas in the country, equalling around one third of all apprentices.
  • Employers will have longer to spend funds in their digital account, now with 24 months before they expire, an increase from government’s original proposal of 18 months.
  • A commitment to introducing the ability for employers to transfer digital funds to other employers in their supply chains, sector or to Apprenticeship Training Agencies in 2018.
  • More funding for STEM apprenticeship frameworks and higher pricing of apprenticeship standards to support improved quality, and providing greater flexibility to train those with prior qualifications.

How will the proposed funding bands work? Will they work for construction?

The government’s proposed funding bands for framework apprenticeships raise real concerns for the construction industry.

Even with the sector beneficial STEM increases to funding the CITB has warned that the government’s proposed funding bands will cut funding for construction apprenticeships by between 20% and 30%.

“We are concerned that training providers could stop training in the higher cost sectors, such as construction, or they could ask employers to make up the shortfall in cost, which might deter firms from taking apprentices on. We’ve voiced these concerns to the Department for Education and contributed to the recent consultations on apprenticeship funding,” the organisation says.

What’s the co-investment rate?

All employers need to know about something called the co-investment rate. This rate applied to employers that do not pay the apprenticeship levy, or those who do but have used all the funds in their Digital Accounts. In these instances firms will need to pay 10% of training costs, with the government paying the remaining 90%.

However, smaller firms will be exempted from co-investment if they take on a 16-18-year-old apprentice. Companies of all sizes will also receive a £1,000 incentive for taking on one of these younger learners.

What are the new standards going to look like?

New employer lead standards are being drawn up for apprenticeships which will be funded at a higher rate, because they are considered to be of a higher standard, than their corresponding framework.

The CITB says it supports the new employer-designed standards but is concerned however, at the slow rate that the transition from construction frameworks to standards is taking. At this rate we will still be working under the existing frameworks system and will continue to beyond 2017.

How will the new levy work with the current CITB levy?

For one year only (financial year 2017/2018), companies with a payroll over £3m who are in scope to the CITB levy will have to pay both levies.

To manage this, CITB has agreed a temporary Transition Package with industry, for firms paying both levies that 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. These funds will primarily come from CITB’s efficiency savings. 

CITB has set up a new employer-led Levy Working Party to scope the options for how the CITB Levy could work alongside the Aapprenticeship levy in future.

Where can I go for more information?

CITB provides up-to-date info about the levy at http://www.citb.co.uk/levy-grant/apprenticeships-levy/ 

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