Opinion: What the UK Apprenticeship Levy means for telcos

By Ann Potterton, CEO at the Institute of Telecommunications Professionals

The UK government recently announced that its Apprenticeship Levy will go ahead from April next year and will have implications for the telecoms industry.

The levy is the government’s scheme to fund an increase in the number, and quality, of apprenticeships to meet its target of creating three million places by 2020.

Following its initial announcement in the Summer Budget 2015, and a public consultation earlier this year, the government confirmed last month that it will start from 6 April 2017.

All employers with an annual wage bill of more than £3m are required to contribute, at a rate of 0.5 percent of their annual bill.

Those with a bill of less than £3m will not pay the levy, but will still have access to funding.

However, for those who are eligible, little time remains before next spring to fully understand the implications and prepare.

How it works

The introduction of the levy changes the way apprenticeships are funded and organised, so will have implications for both levy and non-levy paying employers.

Smaller companies may reap the benefits as they will be eligible for funding for apprenticeships, and the government is also currently looking into whether it may be possible for levy paying employers to fund smaller organisations within their supply chain.

The bill will be based on the total amount of earnings, subject to Class 1 secondary NICs.

Although earnings below the secondary threshold are not counted when calculating an employer’s NICs, they will be included for the purposes of calculating the amount of levy the employer will need to pay.

According to the guidance, earnings include any remuneration or profit coming from employment, such as wages, bonuses, commissions, and pension contributions that a business pays NIC on.

Other payments, such as benefits in kind, will not be counted. 

For employers with a payroll of over £3m:

• The levy will be calculated, reported and paid to HMRC through the PAYE process alongside tax and NICs.
• Once declared to the HMRC, funding can be accessed through a new digital apprenticeship service account, which will be topped up by the government by 10 percent.
• Although the levy is charged at 0.5 percent, there is a levy allowance to offset against this which is £15,000 for each tax year. This means that the levy is only payable on bills of over £3m because 0.5 percent x £3m = £15,000.
• The allowance will operate on a monthly basis, accumulating throughout the year. Any unused allowance will be carried over from month to month.
• Money in the digital account will be used to pay for apprenticeship training. If there are not enough funds available, the government will ‘co-invest’ with the employer to cover any shortfall.
• The government has set up an online calculator to help businesses work out how much they will need to pay.
• Employers who don’t use the levy within 18 months will lose it, and the government will reclaim it and use it elsewhere.

Employers with a wage bill of under £3m:

• Those in this bracket will not be required to pay the levy, but can draw upon the scheme for apprenticeship funding.  
• Under the current proposals, smaller employers are only required to pay 10 percent of the cost of training an apprentice and the government will cover the remaining 90 percent of training costs. The final co-investment rate looks set to be confirmed in October.
• Small employers (with under 50 staff) won’t pay anything if employing apprentices under the age of 19.
• Businesses may also receive a £1k payment, with an additional £1k payment to the training provider.
• Non-levy paying businesses can also use the online calculator to calculate funding.

What next?

The next step for eligible employers is to calculate how much will be paid.

Details such as the percentage of their workforce living in England, and the types of apprenticeship training they will need, are needed to fully work out the cost.

All payroll systems will need to be set up to start payment from April 2017.

We would recommend that employers start to look at recruiting apprentices straight away. 

When the ITP launched its own apprenticeship scheme for members, we found the biggest perceived barriers were the time and administrative costs associated with employing apprentices.

This is still a concern, but we are confident that we have the knowledge and experience to make the introduction of the levy as painless and beneficial as possible for employers.

Further guidance will be released by the government in October 2016, six months ahead of the scheme. 

If apprenticeships are not something you had considered for your business, start to look into it.

After all, they are vital to the future and development of our industry.