British businesses have begun to lose out on up to £3 billion of unused levy contributions from April 2019. In the fourth and latest episode of the Skills Connection podcast, Colin Reeves and I discuss how businesses can utilise levy contributions to address skills shortages.
The podcast is available to view by clicking here: https://itunes.apple.com/gb/podcast/the-skills-connection/id1453527773?mt=2
We’ve summarised the key takeaway points from the podcast below. Get in touch with me if you have any questions.
WHAT IS THE APPRENTICESHIP LEVY?
In April 2017, the Apprenticeship Levy was introduced by the Government as a way of incentivising employers to reinvest in apprenticeships and upskill their workforce.
WHO PAYS INTO THE APPRENTICESHIP LEVY?
Businesses with a UK wage bill of £3million or more will contribute 0.5% of their total wage bill in a monthly payment to a DAS (Digital Apprenticeship Service) account.
BUSINESSES HAVE BEGUN TO LOSE FUNDS PAID INTO THE APPRENTICESHIP LEVY - HOW DOES THAT WORK?
There is a two-year lifecycle for every individual monthly payment that an employer contributes to the Apprenticeship Levy, so employers that made a levy payment back in April 2017 – if they haven’t utilised those funds, they will lose those that contribution in April 2019 – and the same will happens for May and so on.
APPRENTICESHIP LEVY = STEALTH TAX?
Many employers aren’t utilising their levy contributions – and for those employers the Apprenticeship Levy is a stealth tax. Given the timings and the figures, it is a very urgent and expensive problem.
With a reported £3 billion estimated to be sitting in DAS accounts, not being used, a lot of businesses are missing out and gaining no return from the money paid into the Apprenticeship Levy.
WHY AREN'T BUSINESSES REINVESTING THEIR APPRENTICESHIP LEVY CONTRIBUTIONS?
There is a lack of education and direction coming from Government and the Department of Education (DfE) in terms of what an apprenticeship is or can be. If you were to ask 100 people off the street what an apprenticeship is, they would say it is for 16-18-year-old school leavers who do not have any qualifications. Many business models do not require a school leaver apprentice, and therefore switch off when they hear ‘apprenticeship’.
For many others, there is a belief that ‘Apprenticeship Levy’ equals ‘stealth tax’. They think “I will never be able to spend it; it’s a tax and we’re just going to have to pay it. We don’t like it, but it’s not a huge figure, it a comparative smaller figure that goes out every month at 0.5%, so I’ll just pay it.”
IF APPRENTICESHIPS ARE NOT JUST FOR SCHOOL LEAVERS - WHAT CAN AN APPRENTICESHIP COVER?
An apprenticeship can cover anything up to Masters degree level – and there are new standards being introduced to the market on a regular basis. The Government has seen that there is no longer a ‘one size fits all’ apprenticeship that is suitable for all companies.
We work with employers and learning establishments to create a process where an apprenticeship can be more bespoke to a particular position; the learners job role, responsibilities and skill-set. But the apprenticeship can vary in level from entry level progressing to a Masters degree.
THE CHANCES ARE THERE IS AN APPRENTICESHIP THAT WILL COVER YOUR BUSINESS' TRAINING NEED?
Yes – there are more and more new standards being developed and we are working tirelessly to keep at the forefront of the new standards so we can educate our clients.
BUT DON'T EMPLOYERS LOSE APPRENTICES FOR DAYS ON END?
It really depends on what job the apprentice is learning. Blue collar construction or ‘hands on’ engineering realistically need to go off-site to build those skills, although there are instances where you can learn in-house or certain training providers come to you for on-site training.
There are some really good training providers out there who have adapted to allow a more blended learning approach. Blended learning is essentially a mixture of on-site and off-site training including classroom learning, but also virtual learning. These are easy ways to access and document learning within the apprenticeship framework, without necessarily having to lose an employee for a day or hours at a time.
THE VAST MAJORITY OF APPRENTICESHIP TRAINING CAN BE DONE WITHIN THE DAY JOB?
Yes and this is often overlooked in the UK. It is frequently thought that apprentices have got to go off-site to learn and not do their day job. There is an element of that at times, but much of the training can be done whilst doing their job and still be productive to the business.
HOW DOES IT AFFECT BUSINESSES THAT DO NOT QUALIFY TO PAY APPRENTICESHIP LEVY CONTRIBUTIONS?
SMEs have been hit the hardest by the introduction of the Apprenticeship Levy, particularly because of the lack of guidance and support from the Government and other agencies. In essence, the introduction of the levy has monetised apprenticeships.
Let’s not forget, before April 2017 apprentices were free, so any SMEs that really relied on apprentices to bring in new talent and address skill shortages. Up until March 2019, SMEs have had to contribute 10% towards the cost of the course. This has now been reduced to 5% to make it more feasible and affordable for SMEs. However, there are still a number of solutions where we can help SMES, especially once we have an understanding of their business objectives and how we can incorporate the correct apprenticeship strategy to fit with their growth strategy.
HOW CAN JONATHAN LEE SKILLS CONSULTANCY AID BUSINESSES?
We offer an impartial consultancy service that acts on behalf of employers who are looking to find out what the Apprenticeship Levy is and what they can do with their levy funds. Not just for their immediate requirement – these funds aren’t going anywhere - but create a one to five year plan, to find the best ways to gain ROI (return on investment).
First of all, we liaise with the employer and ask:
Where would you spend the money if you could?
Is it going to the tax man or is it going on your staff?
Where on your staff would you invest?
Where do you want to get better?
From there, we can start to build a strategy, introducing employers to our large network of training providers and colleges who understand the benefit of providing a blended learning approach.
Once a strategy is created, businesses will stop losing money from the Levy, which has already begun to happen from April 2019.
We understand and appreciate that business leaders are very busy, making it difficult to find the time to plan a strategy. We are here to offer an educational piece; a truly impartial consultancy service where we can educate you as an employer, save a vast amount of time in research and development of what you can and can’t do with your levy contributions. We can then connect you with our network of education providers. We are working hard with employers to identify an apprenticeship levy strategy that will work in line with their business growth strategy.
'USE IT OR LOSE IT'
Businesses should start looking at incorporating a levy strategy now before it is too late, because employers have already started to lose out on large sums of money. I would suggest reviewing exactly where you would like that money spent on existing staff – because it’s not just for new employees, it’s about upskilling your existing workforce. Making your workforces sharper, more productive, improving employee retention and addressing skills shortages – the apprenticeship levy can be used as a positive funding mechanism for growth.
WHERE DO THE LOST LEVY FUNDS GO?
No one truly knows exactly where those left-over funds are going – it’s meant to be for the SME market – the non-levy payers, but it’s still not clear. It’s going to be really interesting to see, within the next few months, to see how the landscape evolves, how things will change.