Will the apprenticeship levy help close the skills gap?

08 February 2017

08 February 2017 by Kate Arnott Tax, Payroll

The apprenticeship levy is intended to help fund 3 million apprenticeships by 2020 and requires all employers operating in the UK, with an annual pay bill of over £3million, to pay a 0.5% levy on their pay bill each month from 6 April 2017.

However, the Government has come under fire from the CBI, who have called for a ‘radical rethink’, the IoD, who have called for a delay to ‘avoid confusion’ and the EEF (Engineering Employers Federation) who have warned of a ‘looming car crash’ after their research revealed only 1% of manufacturers support the roll out of the Levy in its current guise.

Kate Arnott, Manufacturing & Engineering specialist in the Thames Valley at MHA MacIntyre Hudson comments:

"It remains to be seen if this initiative will make up for years of underinvestment in apprenticeships, which has helped lead to the looming skills crisis we currently face.  With 800,000 skilled engineers due to retire over the next decade, it’s crucial that action is taken now to ensure that expertise and knowledge filters through to the next generation.  Likewise, new talent and apprentices are often far more familiar with emerging new technologies and help inject fresh ideas to drive innovation.   Apprenticeships bring opportunities for both the trainee and the trainer, as employees at all levels have the potential to share knowledge up and down the ranks. 

In our experience, businesses that invest in apprenticeships as well as training and development for existing staff, are reaping the rewards of a diversified, skilled and qualified workforce and demonstrate greater efficiency and innovation.  They are also agile and creative enough to adapt and expand as market opportunities arise. 

However, the Apprenticeship Levy is not the magic wand to close the skills gap and there are real concerns around key elements.  At present the levy is adding further layers of confusion and many businesses will struggle to take out as much as they put in; especially in areas where registered education providers cannot keep pace with industry requirements.  Other issues surround the proposed funding bands for framework apprenticeships, which, for example may cut funding for construction apprenticeships by up to 30%.  Conversely, arguments to delay do little to support the UK’s assertion that we are dynamic, adaptable and able to seize the opportunity.  The Government must act quickly to provide clarity on the ever mounting number of questions industry leaders are posing. 

We excel in hi-tech industries but the rest of the world does not sit still; we must maintain our position by investing in a more highly skilled workforce."

The calculation

The levy is charged at 0.5% of the annual pay bill, with a £15,000 annual allowance, which effectively excludes employers with a pay bill under £3million. It comprises remuneration from employment including wages, cash bonuses, commission and pension contributions that you pay class 1 NICs on.  It does not include benefits in kind, earnings of employees under the age of 16 or of those not subject to UK NICs legislation.

Example for a business with a £6million pay bill:

Levy (£6m x 0.5%)                               £30,000

Annual allowance                               (£15,000)

Annual Levy payment                         £15,000

If you are required to pay the levy, you will need to declare this and include it in your usual PAYE payment to HMRC. The first submission in which you make the declaration will be in May. The levy allowance operates on a monthly basis and accumulates throughout the year with any unused allowance carried forward.  You will be able to view your funds accumulating on a monthly basis and will receive a 10% top up from the Government when used to purchase apprenticeship training.  Unused funds expire after 24 months.

Accessing the levy

Employers in England will be able to claim back their levy contribution in the form of digital vouchers, which they can then use to pay for training apprenticeships from May 2017. Any apprenticeships started from this date will be funded according to the new rules.

Businesses not required to pay the Levy will also benefit as the Government will contribute 90% of the cost of apprenticeship training, with just a 10% contribution from the employer.  There are further allowances for taking on 16-18 year olds and those with additional needs.

Contact us

For further information, or an informal discussion on the implications or mechanics of the Apprenticeship Levy, please contact Kate Arnott, MHA Maclntyre Hudson.