APPRENTICESHIP LEVY. FAQs

Transcription

1 APPRENTICESHIP LEVY FAQs EEF, the manufacturers organisation Updated:

2 CONTENTS BACKGROUND... 3 Why has the government introduced an apprenticeship levy?... 3 PAYING INTO THE LEVY... 3 When does the levy come into effect?... 3 Who does it apply to?... 3 How much will I have to pay?... 3 What is are secondary Class 1 NICs payable on?... 4 How will the government collect the levy?... 4 What if I employ agency workers?... 5 What if my monthly pay varies?... 5 How will the levy work if my company is part of a group/ is a connected company?... 5 BUYING AND PAYING TRAINING FOR LEVY PAYERS... 6 How will I draw down from the levy fund?... 7 How much funding can I spend on my apprenticeship?... 7 How has the government decided on which apprenticeship frameworks and standards go into each band?... 8 Who can I spend my vouchers with and what on?... 9 Can I spend my vouchers on a learner that already has prior qualifications?... 9 How long will my vouchers last?... 9 What if I have vouchers leftover? Can I transfer my vouchers?... 9 Can I transfer my vouchers to an ATA in a form of a payment? Why is the government limiting how much employers can transfer? What if I am a levy payer and I use up all the vouchers in my account? How will I pay my training provider(s)?

3 Will there be a completion payment? WHAT DOES THIS PROCESS OF FUNDING LOOK LIKE FOR A LEVY-PAYER? FUNDING FOR NON LEVY-PAYERS How will businesses with a pay bill of less than 3m be funded? Will non-levy payers be using the new Digital Apprenticeship Service? CROSS BORDER FUNDING RULES How much of my levy liability will go to the devolved administrations? Can I spend my levy money with any learner and provider across the UK? What is the definition of a workplace? HOW WILL THE LEVY INTERACT WITH EXISTING LEVY SCHEMES? How will the new apprenticeship levy work with existing industry training boards? FUNDING BEFORE 1 MAY How will the apprenticeships that start before the levy is introduced be funded? INCENTIVE PAYMENTS Will there be any incentives payments (e.g. for recruiting younger apprentices? ENGLISH AND MATHS How will the government fund any required English and maths elements of an apprenticeship?15 DIRECT CONTACTS WITH SFA AND BECOMING AN EMPLOYER PROVIDER My business has a direct contract with the Skills Funding Agency (SFA), am I still in scope of the levy? Can I move my training in-house and become a training provider? NEED TO KNOW MORE?

4 BACKGROUND Why has the government introduced an apprenticeship levy? When the new apprenticeship levy was announced, the government argued that part of its introduction was due to a reduction in employer investment in training. The new levy however is most likely to have been introduced in response to the government meeting its 3 million apprenticeship starts target, whilst the Department for Business, Innovation and Skills (BIS) having to make significant cost savings. PAYING INTO THE LEVY When does the levy come into effect? The apprenticeship levy will come into effect in April Employers will be required to declare their levy payable based on their payroll year to date. An employer s first levy payment will be in May 2017 for the levy due on their April payroll. Who does it apply to? The apprenticeship levy applies to employers who have a pay bill, and pays the employers national insurance contribution in a tax year. While the levy applies to all employers, a 15,000 allowance means that only those stand-alone companies with a pay bill above 3 million will actually pay any levy this is subject to the rules on connected companies and variable pay, (see below). It is possible that employers with an annual pay bill of less than 3 million will in some circumstances pay some levy at some point during the year or that a group of companies which, together, have a pay bill of less than 3 million will also pay the levy. The basic levy is 0.5% of an employer s pay bill. Therefore an employer with a 3 million pay bill will incur an annual levy of 15,000. Given that their annual allowance is 15,000, their actual liability will be nil. If a company has a pay bill of 10million, then: Levy at 0.5% = 50,000 Minus the 15,000 = 35,000 for actual levy payable. How much will I have to pay? The levy has been set at a rate of 0.5% of an employer s pay bill. 3

5 Employers then get a 15,000 allowance, taken off this amount. For employers with multiple pay rolls and more than one HMRC reference and connected employers, only one allowance will be available. Definition of pay bill: pay bill is based on total employee earnings subject to class 1 secondary NICs What is are secondary Class 1 NICs payable on? The elements of pay which secondary class 1 NICs are payable on are not the same as pay for PAYE purposes or the same as Class 1A. Broadly some of the differences are, Income tax? Class 1 Employer (secondary) NICs? Pay/salary/wages Yes Yes Bonus/commission Yes Yes Employer pension contributions No No Employee pension contributions Benefits in kind (e.g. provision of a car, private healthcare etc.) Tax relief can be claimed subject to limits Yes, unless one of the limited exemptions applies Yes (because they are paid on gross pay, before deductions) No (they attract class 1A NICS instead) Apprentices under 25 Yes No Termination payments Yes over 30,000 No There is further detailed guidance available at, _15.pdf Definition of an employer: an employer is a person who has liability to pay the secondary NICs. How will the government collect the levy? The levy will be collected through the employer s Pay As You Earn (PAYE) and will be payable alongside income tax and national insurance. The levy will be collected monthly, with the annual allowance of 15,000 similarly deducted on a monthly basis ( 15,000 divided by 12 months). An illustrative example of how this will work, along with the government s 10% top up can be found later in this document. 4

6 What if I employ agency workers? If you use agency workers and the recruitment agency is the workers employer (technically, if the agency pays the employer NI contribution) then these workers pay do not count towards your pay bill and you will not pay the levy on their pay. The levy will be payable by the agency. What if my monthly pay varies? There will be cases where an employer s pay bill varies throughout the tax year, however, the liability to pay the levy arises each month. The total calculation is based on the employer s annual pay bill. The government has acknowledged that there will be employers with variable pay, especially those with seasonal work and wants to ensure they are not disadvantaged. Employers with a variable pay bill, which over the tax year is less than 3 million, may still have to pay some levy in some months. While again not confirmed we understand that employers with a paybill of over 2.8m may have to register themselves as levy-payers and pay if their monthly liabilities would require them to pay. We are seeking confirmation on this figure. The annual 15,000 allowance will be available in equal monthly amounts, with any unused portion accruing to a following month. Should therefore an employer s liability to pay the levy exceed the allowance in some months then they may have to pay the levy for these months. Should this happen, then this is likely to be adjusted at the end of the tax year via a rebate. However, there are considerable complications once an employer pays the levy as they can only then pay for apprenticeship training with vouchers and will be liable for meeting the costs of training with their provider. This is an issue we will be continuing to discuss with the Department for Education (DfE). How will the levy work if my company is part of a group/ is a connected company? Every individual employer is levied, however, if there is common ownership or common control (a group/subsidiary situation), then as a group, only one allowance of 15,000 will be allowed. The rules on common ownership are complex and the definition has been taken from sections 450/451 of the Corporation Tax Act They apply to companies and limited liability partnerships. The rules on the allocation of the allowance, (see below), apply to companies that are connected at the start of the tax year and not those who may become connected at a later date. Assuming that they then remain connected at the start of the following tax year, then these rules will then apply to them. The effect of the rules are that the pay bills of connected companies are all liable to a levy payment and that as a group only one total allowance of 15,000 can be claimed. The allowance can be split between the companies in the group, but this division must be decided upon and notified to HMRC before the start of the tax year and cannot then be changed for the remainder of the tax year. 5

7 Therefore, if all the companies connected at the start of a tax year have a pay bill of under 3 million in total they are unlikely to pay the levy, as long as they ensure that the allowance is distributed between them before the start of the tax year in such a way as to ensure that each of their liabilities is covered by part of the 15,000 allowance. However, in the event that they have variable pay, (see above and our answer on companies with variable pay), then they may still have some levy to pay during the year. Definition of connected company : is defined as for purposes of Corporation Tax a company is treated as having control over another if it exercises, is able to exercise, is entitled to acquire exercise, direct or indirect control over its affairs. 1 WORKED EXAMPLE OF CONNECTED COMPANIES: Company A, B and C are all connected. Company A has a paybill of 5m. Company s B and C each have a paybill of 2m. A decision is taken that Company A will take all the 15,000 allowance. Company B and C will not take any of the allowance. Therefore, the levy liability of each of the companies are as follows: Company A: 0.5% of 5m, less the 15,000 deduction = 10,000 levy liability Company B: 0.5% of 2m = 10,000 levy liability Company C: 0.5% of 2m = 10,000 levy liability. However, the companies could have split the allowance between them. BUYING AND PAYING TRAINING FOR LEVY PAYERS 1 This is our current understanding of the definition, however is subject to change following the revised regulations. 6

8 How will I draw down from the levy fund? The new levy will be introduced alongside a new online Digital Apprenticeship Service (DAS). The DAS will require an employer to register their details online. When that employer wants to draw down from the levy fund, they will need to register the details of that apprentice (age, the standard they will be on, etc.) which will then tell the employer how much levy they can draw down, in the form of the voucher. These vouchers can then be used by the employer to spend on training with a registered training provider. EEF is working closely with the Skills Funding Agency (SFA) on the development of the DAS and organising member roundtables in autumn 2016 for manufacturers to feedback on the system. Any employers interested should contact the policy team at the bottom of this page. How much funding can I spend on my apprenticeship? How much an employer can draw down from the levy will be dependent on the standard or framework the apprentice is starting on. In the future the funding tariffs for new standards will be set by government upon the advice of a new industry-led body known as the Institute for Apprenticeships (IfA). Led by employers, the new IfA should give a better reflective of what it costs to deliver each apprenticeship standard. The government recently published the delayed funding guidance, which advised employers how much they can spend on apprenticeship training and assessment. The guidance made the following important announcements: Funding bands to replace current funding system: There are currently two different types of apprenticeship scheme frameworks and standards. They are funded in two different ways. In the future, they will be funding in the same way. Under the new system, the amount that an employer can spend on apprenticeship training and assessment will depend on which band that apprenticeship is in. There will be 15 funding bands, with the upper limit of these bands ranging from 1,500 to 27,000. All existing and new apprenticeship frameworks and standards have been placed within these funding bands. Employers can search for current framework and standards and see the funding band that has been allocated online here: The upper limit of each funding band will cap the maximum amount of digital funds a levy-paying employer can use towards that apprenticeship. For non-levy payers, the cap limits the maximum price that government will co-invest towards the training. Funding bands and examples: 7

9 How has the government decided on which apprenticeship frameworks and standards go into each band? For apprenticeship frameworks the government currently pays depending on the age of the apprentice, with younger learners having more of the costs covered. Under the new model there will be no differentiation based on age. Instead, each individual framework pathway will be placed in the nearest funding band based on the current rate of during the government pays providers for training for adult apprentices. The government has recognised however, that many employers offering STEM apprenticeships pay far above the current public available, and would be particularly disadvantaged because the funding allocations are based on the adult rate. Therefore, the government has introduced STEM uplift. Any Level 2 STEM Apprenticeships will have a 40% uplift on the current funding, and any Level 3 STEM Apprenticeships will have an 80% uplift. For the purposes of this uplift, STEM will cover subject sector frameworks in: Engineering and Manufacturing Technologies, Information and Communication Technology, Science and Maths as well as Construction, Planning and the Built Environment. For apprenticeship standards no such uplift will apply. Standards are in general higher quality and more rigour and therefore more expensive to deliver. This has been recognised and on the whole standards have been allocated in a higher funding band than frameworks. Currently, standards are paid through a combination of government and employer funding. The government pays two-thirds and the employer one third, up to the maximum funding of 27,000. Under the new system, lower cost standards will be allocated to the new funding band that most closely aligns with the current funding band the standard is assigned to. Those standards currently assigned to the widest and highest cost band ( 12,000 to 27,000) will be allocated to a new band within this range. This is because there are now more funding bands than under the Trailblazer model. 8

10 Who can I spend my vouchers with and what on? Vouchers from the DAS can only be spent with registered training providers. The new online system will list the register providers where vouchers can be spent. Employers can already search for approved providers that deliver the apprenticeship they want here: Vouchers can only be spent on apprenticeship training, not wider costs (e.g. salaries). If an employer decides to become a provider in their own right they may be able to use their levy payments more widely. Can I spend my vouchers on a learner that already has prior qualifications? Employers will be able to use funds in their digital accounts or access government co-investment support to train any eligible learner to undertake an apprenticeship at a higher level than the qualification they already hold, including a previous apprenticeship. Furthermore, a learner can be funded to undertake an apprenticeship at the same or lower level than a qualification they already hold, if the apprenticeship will allow the individual to acquire substantive new skills and the content of the training is materially different from any prior training or previous apprenticeship. How long will my vouchers last? The vouchers will last 24 months from the time that they appear in the digital account, which will be monthly. If they are not spent by this time, they will expire and the employer will lose them. When vouchers leave your digital account, the oldest vouchers will be taken first. What if I have vouchers leftover? Can I transfer my vouchers? Vouchers can be used across a company group, (that is between connected companies ). The DAS system will allow group companies to pool the vouchers and then spend them throughout the group. However, in the first year vouchers cannot be shared with a company outside the group, for example in a supply chain. From 2018, the government is proposing to allow employers to transfer up to 10% of their levy funds that enter their digital account in a given year, but only to transfer to an employer with a digital account. EEF is sitting on a Steering Group, alongside other business groups and the third sector to explore how this could work. 9

11 Can I transfer my vouchers to an ATA in a form of a payment? In the first year, no. In 2018, the same transferring limits will apply as above. Employers will be able to transfer up to 10% of their annual vouchers to the ATA. Some ATAs will themselves have a paybill of over 3m and therefore will have vouchers to spend. It will be up to them to decide how they use those. However, an employer cannot use their vouchers on apprentices that are not employed by them (including those employed by an ATA). Why is the government limiting how much employers can transfer? EU state aid rules current limit the flexibility to transfer funds. While the decision has been taken to leave the EU, until exit negotiations are concluded, the UK remains a full member of the EU and all rights and obligations must remain in force. EEF is sitting on a Steering Group, alongside other business groups and the third sector to look in more detail at how this could work. What if I am a levy payer and I use up all the vouchers in my account? If you are a levy payer and you have used all the funds in your account and still need to pay a provider for apprenticeship training or wish to recruit additional apprentices, then you will move over to coinvestment as for non-levy payers. Government will fund 90% of the apprenticeship training and assessment, and you will pay 10%. Once the provider had received this contribution, then they will be able to claim an additional payment from government. The maximum amount that you can receive from the government will be dependent on the funding band within which that apprenticeship sits. How will I pay my training provider(s)? As a levy-payer, each month you will pay your levy liability. The English fraction of this levy liability (the levy paid on the portion of your paybill for employees with an English postcode) will then appear in your new online account. Added to this figure will be a 10% top up. The amount that you spent will depend on the apprenticeship standard or framework that you choose, with each apprenticeship and standard being allocated into a funding band with an upper limit. As an employer, when you agree to buy apprenticeship training from a particular training provider and the apprenticeship has started, monthly payments will automatically be taken from your digital account and sent to the provider. As an employer, you will not have control of these payments. 10

12 The amount taken from your account will be calculated by dividing the agreed price between the months required to undertake the apprenticeship. A completion payment (20% of the cost) will be held back (See: Will there be a completion payment?) This means that you cannot frontload payments, even if the majority of the cost of the apprenticeship is within the first 6 months for example. EEF would like to see greater flexibility around payment schedules and are calling on the government to allow employers to agree a payment schedule with their providers. This may be monthly payments or may be an alternative payment plan. Will there be a completion payment? 20% of the total cost is held back and taken from an employer s digital account at the end of the apprenticeship. The government has argued that this is due to more funding being required to pay for end point assessment (which new apprenticeship standards are generally moving towards). The Government s argument for this is also to ensure the employer does not overpay in the event that the apprenticeship does not finish their apprenticeship. However, we have some concerns that a substantial amount of funds could be taken from employers in their final month. If for example an apprenticeship is 18 months long, on the 18 th month a larger than usual amount will be taken from an employers account. If they have multiple learners, this figure could be more than is in their account, and for that short period would need to move onto co-investment. WHAT DOES THIS PROCESS OF FUNDING LOOK LIKE FOR A LEVY-PAYER? 11

13 FUNDING FOR NON LEVY-PAYERS How will businesses with a pay bill of less than 3m be funded? Companies that are out of scope of the levy will be required to co-invest in apprenticeship training. The current proposal for co-investment is such that non levy-payers will have 90% of their apprenticeship training and assessment funded, with the employer paying 10%. This must be cash and not in-kind. Unlike levy-payers, those companies not paying into the levy, will be able to agree a payment schedule with their provider and choose to spread the payments they make over the life time of their apprenticeship. For at least the first year, non-levy payers will need to make their co-investment payment direct to their training provider, and upon receiving this payment the provider will then be able to receive a payment from the levy fund. Government will require verification from the provider to ensure the coinvestment has been paid, to prevent free apprenticeships being provided which has been seen in the past. These two payments together may, or may not, cover the entire cost of the apprenticeship training. Where they do not, then the employer will need to pay the excess to the provider. We discuss more on funding bands in this document (See: How much can I spend on apprenticeship training?) Will non-levy payers be using the new Digital Apprenticeship Service? Employers not in scope of the levy will be able to use the functionalities of the new service that allows them to look for apprenticeship training and search for providers. They will not however be using the DAS to pay for apprenticeship training and assessment until at least CROSS BORDER FUNDING RULES How much of my levy liability will go to the devolved administrations? The levy will be UK wide, therefore employers that operate across the devolved nations will pay their contribution based on all their UK employees, irrespective of where they live or where they work. The location of the employer is equally irrelevant and every UK employer will have a liability to pay the levy, (subject to the allowance of 15,000). However the vouchers which levy paying employers will be allocated and which they can then spend on apprenticeship training will be based, only, on the portion of the levy which they pay on the pay bill for their English employees. If therefore an employer has a 3 million pay bill for their English workforce and a 1 million pay bill for their Scottish workforce, then they will receive 3 million in vouchers. They can only use these vouchers to train their own employees on English apprenticeships. A part of the total levy fund which all employers contribute to will be set aside and given to the home nations, other than England. 12

14 The government has inserted a clause in the Enterprise Bill that would enable the devolved administrations to use the levy/voucher system in the same way as in England should they wish to do so. It will ultimately be up to the devolved administrations to decide how the money is spent. There has to date been no announcement on this. Government has indicated that the portion of the total levy fund which will be set aside and distributed to the home nations other than England will be based on the postcode for each worker held by HMRC. Therefore, employers will only receive vouchers for the levy paid in respect of the pay bill of employees with a postcode that HMRC hold for them that is in England. Employers will not receive a voucher in respect of any portion of the levy paid on the pay bills of employees that have a postcode in Wales, Scotland or Northern Ireland. Can I spend my levy money with any learner and provider across the UK? In short no, however the government is changing the system to make it more flexible than is currently the case. Under the current apprenticeship funding rules, there are multiple conditions on which learners can be funded to undertake an apprenticeship through the English system. These rules take into account provider location, employer location and employee residence. Under the new model, there will be one single test to decide whether apprenticeship training can be funded through the English system (and therefore whether levy payers can use their vouchers on this training). The test is: whether the apprentice s main place of work is England. If the answer is yes, then employers would be able to use the funds from their digital account to pay for training and access government co-investment if they do not pay the levy. However, that learner must be undertaking a government-recognised English apprenticeship framework or standard. What is the definition of a workplace? For the purposes of the above, the government is proposing that the definition of workplace is the physical place of work, designated by the employer, where the apprentice is expected to spend the majority of their time during their apprenticeship. HOW WILL THE LEVY INTERACT WITH EXISTING LEVY SCHEMES? How will the new apprenticeship levy work with existing industry training boards? There are two existing industry training boards the Construction Industry Training Board (CITB) and the Engineering Construction Industry Training Board (ECITB). Both bodies are required to consult 13

15 with their member companies in summer 2016 on how the new apprenticeship levy will interact with their levy mechanisms. The CITB recently announced that in the first year at least employers will be required to pay both the UK wide apprenticeship levy and the CITB levy. The ECITB is currently consulting members now with a proposal for a reduced rate, substituted by ECITB reserves. Members that fall in scope of the ECITB need to ensure their thoughts on this are heard through the various platforms such as ECITB s Regional Forums or through ECITB recognised employer organisations. We strongly advise companies that in scope of one of the above to get involved in the consultation process. FUNDING BEFORE 1 MAY 2017 How will the apprenticeships that start before the levy is introduced be funded? The new funding system will come into effect on 1 May Apprenticeships that are started before the 1 May 2017 will continue to be funded under the current model for their entire length. Therefore, companies starting apprentices in September 2016 will be funded under the existing funding model for the whole of the apprenticeship. Vouchers cannot therefore be used to fund apprentices who start an apprenticeship before 1 May INCENTIVE PAYMENTS Will there be any incentives payments (e.g. for recruiting younger apprentices? Currently, the government incentivises recruitment of younger apprentices through the Apprenticeship Grant for Employers. The AGE grant will continue until the end of the 2016/17 academic year. Going forward, the government will continue to offer incentive payments. Employers with fewer than 50 employees will be able to train 16 to 18 year old apprentices at no cost. The government will pay 100% of the apprenticeship training costs for these learners. In addition, those employers with fewer than 50 employees who recruit a 19 to 24 year old apprentice who was formerly in care or has a care plan, can do so at no cost. The government will pay 100% of the apprenticeship training costs for these learners. There are also incentives for all employers that recruit young people. Both levy payers and non- levypayers will be paid 1,000 if they choose to recruit a year old apprentice or an apprentice aged that has been in care or has a care plan. 14

16 These payments will be made to the employer via the provider, with the aim to move payments directly to employers in the future. The payments will be paid in two equal payments at 3 months and 12 months. Providers will also receive 1,000. From April 2016, employers National Insurance Contributions (NICs) for apprentices under 25 was be abolished, therefore incentivising recruitment of apprentices under this age bracket. The Government has also announced that providers, delivering apprenticeship training for 16 to 18 year olds will receive an extra 20% of the funding band maximum for frameworks. This is likely to be only for a transitional period, as frameworks are phased out and replaced by standards. This increase will also apply to 19 to 24 year olds who have been in care or have a care plan. ENGLISH AND MATHS How will the government fund any required English and maths elements of an apprenticeship? Currently, government funds basic English and maths if the apprentice requires this. Under the new system, the government has said they will make funding available if an apprentice needs additional training to meet Level 2 in English and maths. The Government will pay training providers directly for this, with 471 paid for each qualification. Similarly, the government will allow providers to claim additional costs of training an individual with a disability. The Government has stated that funding for basic English and maths will not come from an employer s digital account. However, they have not stated whether the funding for basic English and maths will come from the funding collected by HMRC from levy payments. We expect that this is the case. If the government confirms that this is the case, we will be opposing this proposal as we firmly believe the state, not employers, should pay for this level of English and maths. DIRECT CONTACTS WITH SFA AND BECOMING AN EMPLOYER PROVIDER My business has a direct contract with the Skills Funding Agency (SFA), am I still in scope of the levy? Yes, subject to having a liability to paying the levy which exceeds the annual allowance of 15,

17 Can I move my training in-house and become a training provider? Yes. The Government as now published guidance for employers that themselves wish to become training providers. A link to which can be found here: There are pros and cons of becoming an employer provider. One of the major pros is being able to spend some of your levy vouchers on other aspects of the apprenticeships (more detail of which can be found in the guidance). The cons is that as a provider you are subject to the same rules and inspections as required by other providers, which can be onerous. It will be an individual business decision as to whether your company decides to adopt this approach or not. NEED TO KNOW MORE? Ask questions: apprenticeshiplevy@eef.org.uk Visit our website: Watch our webinars: Government announcements on the levy: Follow us online: Blogs: @EEF_Apprentices LinkedIn: 16