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27 February 2017

The new Apprenticeship Levy: how does it work?

Apprenticeships are a potentially vital way for the construction industry to address a skills shortage that is only likely to get worse due to retirements from the industry and potential restrictions on free movement following Brexit.  The number of such apprenticeships may be boosted by a new levy being introduced from 6 April 2017 to fund apprenticeship training. 

How will this levy work?

The levy will apply to all employers in the UK whose annual payroll exceeds £3 million.  HMRC will charge employers 0.5% of their total pay bill, through the PAYE system, though employers receive a “levy allowance” of £15,000 per year which is deductible from the levy payable. 

Who can benefit from this levy?

All employers:

  • For those employers paying the levy, their payments are credited to a digital account (though note that these funds expire if not used within 2 years) that can be used to pay for training apprentices.  The Government then provides a 10% top-up on the credited amount.
  • For those employers who either do not pay the levy or have used up their credits, they will only need to contribute 10% of the training and assessment costs, with the remaining 90% being Government funded.  However, the funding bands for different types of apprenticeship training ultimately cap the level of Government funding.

What can the levy be used to fund?

The funds can be used to pay for apprenticeship training and assessment with an approved provider and assessment organisation.  These funds cannot pay for wages, travel or the costs of setting up an apprenticeship programme. 

How will this affect the construction industry?

The Construction Industry Training Board (CITB) estimates that only 1% of employers registered with them will need to pay the levy.

The new system seeks to phase out existing apprenticeship frameworks, moving towards an apprenticeship standards model that, similar to a degree, requires specific criteria to be met in order to call it an “apprenticeship”.  However, these standards are being set at a sector level and relevant standards for the construction industry are yet to be approved.

In the meantime, for the financial year 2017/2018, companies with a payroll over £3m who are also in the scope of the CITB levy will have to pay both levies.

The CITB has therefore agreed a temporary transition package with the industry for firms paying both levies.  Under this arrangement, these firms will be able to claim CITB funding at an enhanced rate, capped at their level of apprenticeship levy contribution.

Conclusion

It is important that all members of the construction industry are aware of the potential funding available from this scheme.  This scheme is broader than the CITB scheme and therefore construction clients may have to pay into the scheme but can also potentially benefit from the scheme.

For any company having to pay the levy, and particularly those companies having to pay both levies, it is clearly in their interests to consider taking on a sufficient number of apprenticeships so that they can recoup their payments in training those apprentices.
It is also something that large contractors will have to consider when pricing their overheads in building contracts.


This article was written by James Worthington, senior associate, and Leah Rushton, trainee solicitor. For more information please contact James on +44 (0)20 7427 1070 or james.worthington@crsblaw.com

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