Apprenticeship Levy guide for schools | HCSS Education

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Apprenticeship Levy guide for schools

Due to launch on 6 April, the new Apprenticeship Levy will see schools, local authorities and multi-academy trusts with large payrolls forced to pay a 0.5% levy on their wage bill.

When it was announced in the autumn of 2015, the levy was billed as a way of making sure that big businesses shouldered more of the costs of training workers. But the ‘big business payroll tax’ will also affect cash-strapped schools, including some small community schools.

This guide provides all the information that schools need about the Apprenticeship Levy, including:

  • Which types of school will be affected by the levy
  • How much schools need to pay
  • How schools can access apprenticeships
  • How schools can make the most of apprenticeship schemes

What is the Apprenticeship Levy?

The Apprenticeship Levy is a 0.5% levy on company payrolls over £3 million.

When the then Chancellor George Osborne announced the charge in 2015, he said it would raise an extra £3 billion a year to fund three million new apprenticeships.

The levy is part of a broader package of reforms to the apprenticeship system in England. These broader changes will impact the way that businesses access funding for apprentice training and the types of apprenticeships on offer.

Which schools will be affected by the change?

Any employer with a payroll in excess of £3 million must pay the 0.5% levy.

For these purposes, the government classifies an employer as “someone who is a secondary contributor with liability to pay Class 1 Secondary National Insurance contributions”.

So far so simple, but employers also have an annual levy allowance of £15,000. This isn’t a cash payment, but it can be offset against an organisation’s Apprenticeship Levy liability.

Effectively, this means that employers with a wage bill that is just in excess of £3 million won’t pay a very high Apprenticeship Levy.

Some types of school will be affected by the levy more than others.

Community schools and voluntary controlled schools

For community and voluntary-controlled schools, the local authority is usually the employer. In these circumstances, any local authority with a pay bill in excess of £3 million will pay the levy.

The general thinking is that local authorities will seek to pass these costs onto individual schools, so maintained schools could indirectly pay the levy, even if their wage bill below £3 million.

Foundation and voluntary aided schools

Foundation and voluntary aided schools tend to employ their own staff, so they will be responsible for paying the levy if their wage bill is over £3 million.

Free schools and standalone academies

In free schools and standalone academies, the trust is the employer. So if the individual school’s pay bill is more than £3 million then the trust will need to pay the levy.

MATs

In MATs, the overarching trust is generally the employer for all the staff at constituent academies. If the MAT’s total pay bill is in excess of £3 million then they will pay the levy.

‘Discrimination’ against smaller local authority schools

The Apprenticeship Levy has been criticised by the Local Government Association (LGA) because they believe that it unfairly affects small, council-controlled schools.

Because local authorities typically have larger wage bills than standalone academies and some MATs, the LGA complained that many small maintained schools will have to pay the Apprenticeship Levy while similarly sized academies will be exempt.

Ministers say that it’s the local authorities that will be responsible for paying the levy, but it is widely believed that local authorities will pass some or all of the costs onto maintained schools.

How much will schools pay?

Apprenticeship Levy payments will be collected monthly by HMRC through PAYE, in the same way as tax and National Insurance contributions.

HCSS Education has just released new functionality on its school budget planning tool that allows users to automatically calculate the cost of the Apprenticeship Levy. HCSS Budgeting also allows users to model the impact of the Apprenticeship Levy up to five years in the future.

HCSS Budgeting customers can enable the Apprenticeship Levy in the 'other settings' section of the software.

Non-Budgeting customers can calculate the impact of the Apprenticeship Levy using one of the following calculations.

For the first month in the tax year:

  1. Divide your allowance (full allowance is £15,000) by 12, to get your monthly allowance
  2. Subtract this figure from 0.5% of your monthly pay bill

For subsequent months in the tax year:

  1. Add up the monthly allowance used for the year so far
  2. Subtract the total levy allowance from 0.5 per cent of the total pay bill
  3. Subtract the levy allowance used
  4. Divide the total by the number of months left

If a school starts paying the levy part way through the tax year, they will need to calculate how much of annual allowance has been accumulated in the current year.

Divide the full annual allowance by 12 and multiply by the number of months since the start of the tax year. This figure is the school’s allowance for the first month of the levy.

Any unused allowance can be carried forward into the next month within the same tax year.

How much will a school pay in total?

You can quickly and easily work out how much the Apprenticeship Levy will cost your school in total by multiplying your annual pay bill by 0.5% and subtracting the £15,000 allowance.

If a MAT has an annual wage bill of £5 million then:

  • Total Apprenticeship Levy: 0.5% x £5,000,000 = £25,000
  • After allowance: £25,000 - £15,000 = £10,000 payment

What apprenticeships are available for schools?

Employers who pay the levy will be able to access funding for apprenticeships through the new apprenticeship service.

There are a range of school-specific new and old-style apprenticeships on offer, but some of the most school-relevant apprenticeships haven’t launched yet.

Some schools and academies will have to pay the Apprenticeship Levy without being able to access new-style apprenticeships, including the School Business Manager apprenticeship and teaching apprenticeship.

But there are still some apprenticeships that will appeal to schools.

Remember that apprenticeships aren’t just for school leavers and new recruits. They can be offered to older workers and existing employees who want to retrain or learn new skills.

Registration for the apprenticeship service is now open to all levy-paying employers, you can find more information on how to register on the gov.uk website.

Here are some school specific apprenticeships that are available now or will be available soon:

Teaching apprenticeship

This high-quality apprenticeship is still in development, but the programme aims to mirror existing teacher training programmes in terms of entry and completion standards.

This type of apprenticeship should be available for the new school year in September 2018.

School Business Manager apprenticeship

Designed to help schools and academies bolster their back office operations, the government hopes to have School Business Manager apprenticeships ready to go in late 2017.

At the moment, schools can recruit for a range of business administration apprentices. These can be found via the apprenticeship service.

Teaching assistant apprenticeship

Teaching assistants play a vital role in the classroom, and the new-style teaching assistant apprenticeship will reflect research into the most effective use of teaching assistants.

Again, the government hopes to have these apprenticeships in place before the end of 2017. Old-style teaching assistant apprenticeships are already available.

Early year apprenticeship

New early years apprenticeships are under development. Old style level 2 and level 3 early years apprenticeships are still available.

School sports apprenticeship

Level 2 and level 3 school sports apprenticeships are available to help schools reinforce their physical education departments.

IT apprenticeship

IT is another area that schools can reinforce with apprentices. IT apprenticeship programmes are already in place across the country.

Making the most of school apprenticeships

If a school pays the Apprenticeship Levy, then they should seek to make the most out of the apprenticeship system.

Before accessing funding for the apprenticeship system through an apprenticeship service account, schools should think about:

  • Areas or skills that your organisation is lacking
  • Skills shortages a school might face in the future
  • Capacity of existing employees to train apprentices
  • Local providers
  • Should funds be used immediately, or would schools be better waiting for new school-specific apprenticeships to launch

How to access local authority or MAT funds

If an individual school or academy has a larger employer over their head (a local authority or a MAT), then they need to agree with the employer group how they will access apprenticeship funds.

The school or academy should be able to negotiate their own apprenticeship funds, in line with what they contribute to the Apprenticeship Levy.

Registering as a training provider

One way schools can get more out of the apprenticeship scheme is to register as a training provider. As a training provider schools can design and deliver training in ways that will be more useful to them.

Guidance for employers who want to become an apprenticeship training provider is available from the Apprenticeship Service.

How to access apprenticeships if a school doesn’t pay the levy

As part of the broader reforms of the apprenticeship system, the government has introduced a new co-investment rate for employers who do not pay the Apprenticeship Levy (either on their own or as part of a larger employer group).

Under this scheme, the government will pay 90% of the costs of training and assessment, up to a certain cap. The employer will only be responsible for paying 10% of the costs.

For more information on the financial impact of the Apprenticeship Levy and how to budget for it effectively, please contact a member of the HCSS Education team on 0845 345 3300.