Changes to the funding of apprenticeships are due from 1 May 2017 which will have an impact on all employers.
A new taxation will apply to fund apprenticeships in England. All businesses will benefit from an annual allowance of £15,000 leaving only those businesses with an annual pay bill exceeding £3 million required to invest into apprenticeships by way of a tax of 0.5 per cent on the annual pay bill.
Whilst most small businesses with a pay bill of less than £3 million will not be directly affected by the tax, all businesses have already been and will continue to be affected by both the new national living wage and the national minimum wage and the annual increases to those minimum pay rates. Add to that the affect on businesses of the staged pension reforms, the last of which will take effect from 1st April 2017, and this represents significant extra outlay for employers.
Where employers are in a connected group (largely, but not exclusively, defined by control), the £15,000 allowance will be shared between those connected employers in whatever proportion decided by the main controller(s). The potential is that smaller employers, with pay bills of less than £3 million, where controlled by a person or company that either employs or controls other businesses which employ and the collective pay bill is more than £3 million, may not obtain the full (or any) benefit of the £15,000 allowance.
The only way of benefitting from the levy on the larger pay bills is by training apprentices. However, where the government historically has fully funded all apprentices aged 16-18, part funding apprentices aged 19-24 by 50% and older apprentices by 40%, moving forwards employers will be expected to pay 10% of all apprenticeship training, with 90% coming from funds generated by the levy. Smaller businesses with less than 50 employees will receive full funding for apprentices aged 16-18 and there are proposals for all employers to receive a one-off incentive of £1,000 for each 16-18 year old apprentice taken on.
The government has sought a way to promote the use of apprenticeships as an alternative career path to university graduates. What it is certainly doing is finding an alternative method of funding and investing in that training, reducing a reported cost to the government of £1.5 billion effectively to zero as a result of the taxation on businesses.
Take a look at the government guidance for more information on the proposed changes to apprenticeship funding from 1 May 2017.