06 Feb, 2017 / BY Jessica Plank

As a manufacturer, are you ready for the apprenticeship levy?

If the answer is no, then I am afraid you are running out of time. First announced during the 2015 Summer Budget, the apprenticeship levy is set to come into force on 6 April 2017. The levy requires all employers operating in the UK with a pay bill of over £3 million per year to invest in apprenticeships.

As 2015 is a distant memory for most and April 2017 is just around the corner, we thought we should get straight into this blog post and answer some of the more common questions manufacturers may have surrounding the levy.

How will the apprenticeship levy work?

Each tax year, qualifying companies will be required to pay 0.5 per cent of their payroll into a digital apprenticeship service (DAS) account. This account can then be used to access funding for training from government-approved providers of apprenticeship training programmes.

From February 2017, employers will be able to register and create their account and will need to link it to their PAYE schemes and it is expected the register of apprenticeship training providers (RoATP) will be available from May 2017. The Government have already started working with some employers to test and improve the service before they invite all other qualifying companies to register.

What is the Government hoping to achieve?

On 14 June 2015, the Government committed to train 3 million new apprentices by 2020. In a statement at the time, then-skills minister Nick Boles said: "If university graduates have their moment in the sun so should people who undertake apprenticeships. Businesses know their value so it's high time they were recognised both by the public and in law as being equal to degrees.

"We want far more employers to get involved in apprenticeships. This means making sure that we practise what we preach in government, so we're going require all public sector bodies – schools, hospitals, prisons and police forces – to employ apprentices."

Why should manufacturers support the apprenticeship levy?

With the ever growing and concerning lack of skills within engineering and manufacturing, companies need to take responsibility to help address the gap. Developing individuals through an apprenticeship scheme can lead to fresh ideas, improvements in the quality of products or services and is a cost effective way of "growing" new talent. In addition to providing formal qualifications, they also offer much needed work experience and a platform to develop "soft" skills – an area some bosses feel are lacking when it comes to new university graduates.

On an economic level, training and education raises the level of skills available and helps individuals to achieve a higher level of qualification, increasing their employment prospects, productivity and earning potential.

How do I calculate how much I need to pay?

Qualifying companies will need to pay 0.5 per cent of their annual pay bill. However, a £15K levy allowance offsets this figure. Therefore, for example, if your annual pay bill were £5M, the calculation would look like this:

Annual pay bill = £5M

Apprenticeship levy (0.5 per cent x £5M) = £25K

Minus allowance (£15K) = £10K levy payment

When will payments be collected?

HMRC will start collecting payments each month from 6 April 2017.

What services will I be able to access?

In addition to selecting an apprenticeship framework or standard, you will also be able to choose the training provider(s) you want to deliver the training. You will also be able to select the organisation that will assess your apprentices and advertise apprenticeship vacancies you have to offer.

Government "top-up"

The Government will apply a 10 per cent "top-up" to the funds you have for spending on apprenticeship training in England. They will apply the top-up monthly at the same time the funds enter your DAS. So, for every £1 that goes into your account to spend in England on apprenticeship training, you receive £1.10.

Proposed development of the apprenticeship levy

In 2018, it is proposed that organisations may be able to redirect some of their funds to another employer or to apprenticeship training agencies. This will enable employers to support other companies within their supply chain or sector by transferring up to 10 per cent of funds from their digital account.

Hopefully, this blog post has helped answer some of the more common questions manufacturers may have surrounding the levy. If you believe your company qualifies but are unsure how much preparation has been made internally, we would encourage you to discuss the issue with your HR department.

There is already a huge amount of information available on this subject but the change of pace is increasing as we move closer to account registration and the implementation date of 6 April 2017. If you or your team do have any further queries or concerns, the Department for Education (DfE) have recently updated their guide on how the levy will work, which we recommend you look through.

Written by Jessica Plank

Based in Switzerland, Jessica holds a Bachelor's degree in Business Administration and has day-to-day responsibility for strategic marketing tactics including blog management, social media marketing, e-mail marketing, and European event management. Jessica’s dedication to maintaining a strong online presence has significantly contributed to the success of ESCATEC's marketing initiatives since she joined the team in 2021.