5 questions that urgently need addressing on the apprenticeship levy

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5 questions that urgently need addressing on the apprenticeship levy

The anxiously awaited guidance from the government has now been published. Having updated our FAQs on more occasions that I can begin to recount, I was looking forward to filling in the gaps to some of the all-important questions. Imagine then, my immense disappointed when some of the killer questions were left answered. Ok, there were a few lines here and there to say this was being consulted on, or further announcements in June, but employers need answers now.

So here are 5 that are really getting me in a tizz….


1. How will the levy REALLY work for employers that operate across the UK?


What the guidance states: 

Apprenticeships are a devolved policy, which means that authorities in each of the UK nations manage their own apprenticeship programmes, including how funding is spent on apprenticeship training….To calculate how much you will have to spend through the English system, we plan to use data that we already hold about the home address of your employees. We’ll use this data to work out what proportion of your pay bill is paid to employees living in England. We’ll make this assessment in early 2017 and will announce the exact date in advance.

Some thoughts from me:

Company A has a UK wide paybill of £20m and therefore their levy payment is £100,000

20% of their employees have a Scottish home postcode and 80% have an English home postcode.

Therefore only £80,000 of Company A’s levy payment will appear in their online account (plus a 10% top up of £8,000). However they have lost £12,000.

The £12,000 goes to the HMT who then allocate to the devolved administrations.


However, this does not appear to be set in stone. The guidance suggests it’s still being consider and there are big questions around the accuracy of this approach.

 The rumour mill is turning about how the devolved administrations will act. Will they use the levy funds to fill in pot holes or will they operate the same or similar voucher system? We just don’t know.

What we do know however that those employers that do have employees across the borders will never be able to get back what they put in, even with the government’s 10% top up.


2. What happens to companies with variable pay?


What the guidance states:


Some thoughts from me:

Some companies may find that at the beginning of the financial year (April) they have a paybill of £2.5m so they aren’t a levy payer. A number of employees are then TUPE transferred into the business in June taking the paybill to £4m so they are then in scope of the levy and would assumedly need to start paying the levy. However in December, the business takes a hit and they lose people taking their paybill below £3m, so they stop paying.

Now the government may suggest rebates are made where appropriate but it’s not that simple…..

It’s not just the levy payments that the government needs to address, it’s how those companies that go in and out of scope of the levy engage with providers.

A company that starts the year as a levy payer, will need to be using the new Digital Apprenticeship Service and will start paying their providers on a monthly basis (as stated in the guidance). If they then become out of scope later in the year, do they then turn to their provider and say “Sorry, I’m not a levy payer anymore so you won’t be receiving monthly payments from me, I’ll need to pay you as a non-levy payer…..” Hmmm not convinced there.


3. What do ‘connected’ companies do about that £15,000 allowance?


What the guidance states:

Where a group of employers are connected they will only be able to use one £15,000 allowance. The definition of connected companies and charities is the same as the definition used with the Employment Allowance.

The government intends to introduce an amendment to the Finance Bill 2016 concerning the allocation of the levy allowance. The amendment will mean that if you are part of a group of connected employers, you must decide what proportion of the levy allowance each employer in the group will be entitled to. This decision must be taken at the beginning of the tax year and will be fixed for that tax year. Each employer will then calculate what they have to pay through the same processes set out above, but using their portion of the £15,000 allowance.

Some thoughts from me:

This is a minor improvement. The draft regulations were written in the way in which only one employer out of a number of connected companies could receive the allowance. This would mean then:

Company A, B and C are all connected.

Company A has a paybill of £5m

Company B has a paybill of £2m

Company C has a paybill of £1m

It is decided that Company A will get the allowance.

This would have meant that company B and C now have to pay 0.5% of their respective paybills


This massively calls into question whether the government’s estimated that only 2% of companies will be capture by the levy is in fact true.

So the guidance has been changed slightly, now stating that a decision needs to be made on how the allowance will be shared at the beginning on the financial year. Now it’s quite difficult to go into this in great detail here on what I am always told my colleagues should be short, snappy blog, however….

Let’s say you are own a nightclub that has a pay bill of £5m so you are in scope of the levy. At the start of the financial year you decide that you will of course use the £15,000 allowance to reduce your levy payment. Then later in the year you decide to buy out a florist, the paybill of which is £2m. The companies become connected…..but you’ve already used the allowance on your nightclub business, so your florist with a paybill of £2m is in scope of the levy, must use the new DAS and lose all its public funding.


4. What payment schedules can levy payers agree with their providers?

What the guidance states:

You can use funds in your digital account to pay your training provider, up to the maximum allowed by the relevant funding band.

For example, the apprenticeship standard you have chosen is in a funding band with a limit of £6,000 and you negotiate a price of £5,000 with your training provider. We will deduct this amount from your digital account, in monthly instalments, over the life of the apprenticeship.

Some thoughts from me:

Now the important part is the part that reads “We will deduce this amount from your digital account, in monthly instalments, over the life of the apprenticeship….”

So if your apprenticeship standard means the training lasts for 3 years and attracts £36,000 of funding then this would mean that £1,000 is paid automatically to your provider each month. There is zero flexibility to pay more upfront or agree an alternative payment schedule with your provider. This reduces flexibility for the employer as well as providers taking a major cash flow hit.

5. When does the clock start ticking on the expiration of vouchers?


What the guidance states:

Funds will expire 18 months after they enter your digital account unless you spend them on apprenticeship training. This will also apply to any top-ups in your digital account. For example, funds entering your account in September 2017 will expire in March 2019, unless you have spent them. Money is spent when it leaves your digital account as a payment to a training provider.

The account will work on a first-in, first-out basis, through either payment or expiry. Whenever a payment is taken from your digital account it will automatically use the funds that entered your account first. This will minimize the amount of expired funds.

Some thoughts from me:

Employers will pay their first levy payment in April 2017. Their 10% top up won’t be in their accounts until May 2017 (bit annoying but we’ll push that to a side). Manufacturers recruit apprentices generally with the academic year. They start in September, so first payments are made to providers in October.

Yet the vouchers now have an 18 month expiration date. So as soon as they make their payments in April 2017 the clock starts ticking. Employers must have spent their April 2017 vouchers by October 2018 else they’re gone. Yes, the guidance says that old vouchers will be used first. So practically that means that the first payment made by a manufacturer to their provider in October 2017, would use the vouchers first put in in April 2017. But employers aren’t convinced they’ll use the vouchers in time, unless the funding rates in June are rather generous.

Moreover, small and medium sized companies (that are increasingly finding themselves in scope) don’t always recruit apprentices in a yearly basis. Some will recruit every other year. It is often the case they don’t have the resource for annual recruitment. So the clock starts ticking on their vouchers in April 2017 but they may not have plans to recruit until October 2018 as they have taken on a cohort in October 2016. Again the vouchers disappear.


There are many many MANY more questions that we need answers on. Let’s just hope the government addresses them soon….


Head of Education & Skills Policy

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