The Department for Education (DfE) has published further details of how the Apprenticeship Levy will operate and the associated system of apprenticeship fundingfor England.

The announcement provides further clarity in addition to some welcome steps for employers, including:

• Apprenticeship levy payers will now have 24 months, rather than 18, to spend levy funds in their digital accounts before they expire

• A commitment to work with employer groups to design a system that enables firms to transfer funds from their digital accounts to their supply chains

• Additional funding to support the delivery of apprenticeships for 16-18 year olds.

The Government has committed to the introduction of the Apprenticeship Levy from April 2017. Timescales remain tight and it is essential for the Government to work with business to achieve a suitable system and ensure a smooth transition. In particular:

• Concerns still remain over the proposed funding caps for construction apprenticeships, as in many cases the costs of delivery appear to have been underestimated

• Government must clearly communicate the new levy and funding arrangements in practical terms that allows employers to understand the end-to-end process for taking on and funding an apprentice

• While the Apprenticeship Levy covers the whole of the UK, the DfE proposals only cover apprenticeship funding in England. Employers need clarity on how the new funding arrangements will come together on a UK-wide basis.

Build UK will continue working with the DfE, CBI and other industry partners over the coming months to ensure an effective system.

Apprenticeship Levy

All employers in the UK with a pay bill over £3 million will be liable to pay the Apprenticeship Levy. The levy rate will be 0.5% of the pay bill, with payments made monthly to HMRC through the PAYE system.

Example – Calculating your Apprenticeship Levy

An employer with an annual pay bill of £5,000,000 will need to spend £10,000 on the levy:

• levy sum: 0.5% x £5,000,000 = £25,000
• subtracting levy allowance: £25,000 – £15,000* = £10,000 annual levy payment

*All employers will have an allowance of £15,000 to deduct from their levy liability.

N.B: The Apprenticeship Levy is separate from the CITB Levy. All in-scope employers with a wage bill of over £80,000 will still pay CITB levy.

Apprenticeship Funding System – England Only

Start date: The funding system will take effect from 1 May 2017 for all apprenticeships that begin after that date. Any apprenticeship which started before 1 May 2017 will be funded through to completion under the current rules.

What funding covers: The system will support employers to pay providers for the training and assessment of apprentices.

Funding bands: All apprenticeships (frameworks and new trailblazer standards) will be allocated to one of 15 funding bands. The upper limit of these bands range from £1,500 to £27,000 and represent the maximum the system will provide for each apprenticeship.

Paying for your apprenticeships:

• Employers who pay the Apprenticeship Levy will receive funding to a digital account on a monthly basis depending on the amount of levy they pay. The money in their digital accounts will be used to pay their chosen providers.

E.g. if an apprenticeship has an upper funding limit of £5,000, the employer will be able to transfer up to £5,000 to a provider from their digital account for that apprenticeship.

• For employers who do not pay the Apprenticeship Levy there will be a system of co-investment, with Government contributing 90% of the apprenticeship costs.

E.g. if an apprenticeship has an upper funding limit of £5,000, the Government will contribute £4,500.

Negotiating with providers: Employers will be responsible for negotiating a price with providers. Any employer that agrees a price which is above the funding limit for their chosen apprenticeship must bear all the additional costs.

E.g. if an apprenticeship has an upper funding limit of £5,000 and the employer agrees a price of £9,000, the employer must pay the additional £4,000 in full.

Additional funding for 16-18 year old apprentices:

The Government will make an additional payment to the provider equivalent to 20% of the maximum funding band for that framework. In addition, the Government will make a £1,000 payment to both the employer and provider when they train a 16-18 year old.