Risk & Economy » The Apprenticeship Levy explained

Despite the turmoil engulfing the government in the last two years, with two general elections and the small matter of the Brexit vote and aftermath, the Department of Business, Innovation of Skills (BIS) remained resolutely focused on introducing its flagship skills training legislation. The Apprenticeship Levy came into force in April 2017, marking the point at which companies with a paybill above £3million must pay 0.5% of their total wage bill.

The idea is that every employer will have to register for a Digital Apprenticeship Service account, where levy amounts will be topped-up with a further 10% from government, creating a funding pot to spend on apprenticeship training.

The message from BIS was clear: they expected larger firms to take this seriously, to use the opportunity of the Levy to both assess their skills needs in more detail and to invest in plugging gaps and developing more trained staff.

And so far, the message seems to be getting through. A recent survey from Workforce found that a growing number of companies liable to pay the Levy are beginning to engage with its provisions. According to Workforce, “The most favoured courses of action for firms with +£3million pay bill were to convert some or all existing training/graduate schemes into apprenticeship programmes (33%) and to recruit more apprentices (30%).”

However, for many FDs the Levy is –so far – simply another tax. Justin Rix has led Grant Thornton’s Apprenticeship Levy readiness programme since 2015. “We started talking to our clients about this 18 months ago,” he says. “And because it was clear that it was quite a significant change that was coming in and there was very little in terms of organisations understanding that and gearing themselves up for that

Rix reports that take up was quite slow until May this year, when the first Levy payments started going out. “So what happened is when they started to actually pay some money out, and then it went up the chain. The FD started asking the question ‘Well we’ve got this cost.  What are we doing with it?’ and then it zoomed up the agenda quite a lot.”

Under the system as currently set up, each employer will have to register for a Digital Apprenticeship Service account, where levy amounts will be topped-up with a further 10% from government, creating a funding pot to spend on apprenticeship training.

However, if Rix’s recent experience with one FD is anything to go by, there remains a lot to do to get the message through on the how and the why. “I spoke to the FD of a large organisation, who had no idea that he could use Levy funds for existing employees. He just thought, ‘We had to go out and hire a bunch of apprentices’. And because they’re in the financial services industry, they had never explored using apprenticeships

In terms of misconceptions, Rix says, the most common surrounds to what uses Levy funds can be put. And he points out, it isn’t just for 16 to 18 year olds coming out of school learning a trade. Employers can use it for developing existing employees as well as for higher level apprenticeships.”

So far, cost rather than strategy is driving behavior. Rix reports that pressure from the board is now beginning to take its toll. “FDs they are being asked a simple question: ‘There’s this cost. What are we doing about it?’ and so they’re then having to get themselves up to speed with what the Levy involves.”

“We are then coming in to help to dispel some of the myths around it, and we’ve had lots of conversations with FDs about the fact that it allows them to up-skill the finance function,” Rix says, pointing to the fact that very recently the Level 7 Apprenticeship Standard was approved, effectively allowing FDs to train finance staff to get their professional qualificationsACCA, ICAEW CIMA included.

“Once they realize that, the FD can now look at his own team and say ‘Well okay.  I’ve got a number of people I’m currently training through their professional exams.  I can move those over to the Apprenticeship and that’s funded from our Apprenticeship Levy so I effectively franked some of my cost but I’m having to pay that externally’. They can fund it out of their levy.”

Another common view is that the Levy will burden the finance team with more admin duties. And it’s trues, in terms of getting started, there is some upfront work: making sure the right processes are in place and working with a Payroll provider who will typically calculate the right amount owed to the Revenue. Once that is done, Rix recommends mandating a member of the finance team to take responsibility for managing the Levy account (it’s also perilous to assume that the Revenue have just got the calculations right initially.)

The second part of will focus on setting up a Levy account, and making sure it is being managed properly because effectively it’s functions as another bank account.

Rix cautions that Levy-paying companies will need to manage cashflows carefully. “You might get spikes in the Levy if there are certain times in the year where your Payroll increases. If you’ve got bonuses or share plans that pay out then obviously you’ve got to make sure that somebody is tracking the two year window to use the funds.

He suggest that if the business sees a spike in the pay bill in March, for example, then the FD will want to make sure that from a cash flow perspective that the funds are drawn down before it runs out 2 years hence.

It’s also worth noting that sometimes apprenticeships training programmes don’t necessarily run conveniently alongside company accounting periods, so that can increase confusion if not handled properly. However, drawing down the money is largely done by the training providers automatically, so it’s not a massive burden from an administrative perspective

Rix reflects that, so far, in his work with the companies that are already some way down the line on using the Levy, the most successful ones have FDs who take the lead, rather than outsource it entirely to the HR department.

“If the FD is purely focused on cost and the pure nuts and bolts of finances, we find that sometimes it’s a little bit more difficult to get them from where they are now to seeing the value of the Levy. That’s because things like enhanced employee engagement, broadening diversity and improving retention are difficult to measure when you’re just looking at a P&L account,” he says.

“So the measurement I think, the calibration between turning the dial on those things and how that reflects on the performance of the business, you need people that understand that dynamic.”

 

 

Arch Apprentices is a pioneering training provider that supports businesses, governments and charities to create a cost-effective and capable workforce, by providing exceptional apprenticeship programmes for both existing employees and new hires. Find out more at Arch Apprentices.