The impact of the Apprenticeship Levy.. Is it really easing the burden?
The Apprenticeship Levy is a levy on all UK employers to help fund new apprenticeships. It came into effect in April this year. The UK government committed to an additional three million apprenticeship starts in England by 2020 and the levy is designed to help to deliver new apprenticeships and to support quality training by ‘putting employers at the centre of the system’.
It was thought that the levy would have a significant fiscal impact on businesses because many regarded it as a tax. However, it could be argued that a greater impact on a wider range of businesses has come from adjustments to the National Living Wage and pensions auto-enrolment.
The impact of the Apprenticeship Levy is sector dependent. Large retailers, with many employees spread over diverse locations, will pay in the region of £235 million of the £3 billion levy in 2017/2018. Manufacturers, with fewer locations and employees, will pay less.
The levy will be paid by less than two per cent of UK employers, - those who have annual pay bills of more than £3 million. For employers paying the levy, the measure is expected to have some impact on administration costs and the impact will vary by employee, depending on the size of their pay bill.
According to the Government, the impact of the levy will not be significant. The levy will help to support quality training and employers who are committed to training will be able to get more out than they pay in levy according to government advice. Employers will pay and report Levy payments through their normal payroll processes, using PAYE real time information (RTI).
Non-levy paying employers will share the cost of training and assessing their apprentices with government - this is called ‘co-investment’. Employers not subject to the Apprenticeship Levy must pay 10 per cent towards to the cost of apprenticeship training, while the government will pay the rest - up to the funding band maximum. This still suggests that there will be a fiscal impact on smaller businesses as well, due to the introduction of the Apprenticeship Levy.
Businesses that do not pay the levy won’t be able to use the apprenticeship service to pay for apprenticeship training and assessment until at least 2018. Instead, they must agree a payment schedule with the training provider and pay them directly for the training. The provider must prove that you have paid your contributions as a condition of government paying its contribution.
It is not all beer and skittles though. According to a survey from the British Chambers of Commerce (BCC) the Apprenticeship Levy has increased the cost base of businesses, which could lead to reduced opportunities for investment and wage growth. Some 20 per cent of the 1,400 businesses surveyed for the BCC’s Annual Workforce Survey said that the Apprenticeship Levy had increased their costs.
David Williams, director of corporate engagement at the Middlesex University London, which co-authored the survey, said: “Businesses are facing the challenge of maintaining profitability while remaining price competitive. This is a tough balance to achieve during what is an uncertain period. And we are seeing many start to tighten their belts and pull back investment.
“We need to up our productivity to enable us to compete globally in a post-Brexit Britain, so it is important when making difficult choices that the development, upskilling and retention of the workforce is high on the list of investment priorities and that businesses get the support they need to do this.”
Other research conducted by the British Chambers of Commerce (BCC) network last year showed half of UK businesses don’t expect to recover all their levy payment. If the terms of levy funding use are not broadened, many UK businesses will simply view it as another tax, which at a time of mounting upfront costs is counterproductive to growth and recruitment opportunities.
Despite government statements it would seem that the Apprenticeship Levy is having an impact on British business from SMEs to big corporates.
So how do you ease the burden of the levy?
There are several new financial products coming to market that are specifically designed to ease the burden of the levy for training providers. This is how they work. The 10 per cent employer contribution is paid directly to the provider so they don’t have to wait for full payment. Great for the providers, but what about the businesses footing the bill? They are still required to pay the levy via HMRC.
The Government pays 90 per cent of the cost of training an apprentice for those businesses that don’t pay the Apprenticeship Levy. But those employers still need to find 10 per cent of what can be a considerable sum. Extra government funding may be available via the Education and Skills Funding Agency. There is plenty of general advice here.
There are several options for sourcing funding for training, staff improvement and future growth. Debt funding in the form of business loans is the obvious choice, including asset-based lending, business loans, peer-to-peer lending or Enterprise Finance Guarantee loans. Business owners can could also consider invoice or asset backed finance or working capital finance to pay for training and staff development.
There may also be training grants available from other sources both on a national and a local level.
To find out more what financial assistance is available to your business to help with business development and staff training, call Pegasus Funding Resources today on 01207 327 0567.