Pensions and HR Charity finance policy

Apprenticeship Levy update: what charities need to know

Earlier this month, CFG organised a round table with the Skills Minister, Nick Boles MP, to discuss the challenges the Apprenticeship Levy will impose on the sector and our recommendations on how to mitigate them.

Post by CFG

This post provides an update on the government’s position in relation to how the levy can work for charities as presented to us during this meeting. You can download the full summary of our discussions from CFG’s website.

In this post

What is the Apprenticeship Levy? A very brief overview What are CFG’s concerns? Key messages from the Government CFG’s next steps Keep in touch

What is the Apprenticeship Levy? A very brief overview

For those of you who do not know the details of the levy have a look at my previous Blog for CFG and my article for FE Week. You can also download the notes from CFG’s initial roundtable with BIS. In the meantime here are the key things you need to know about how the levy will work:

  • From April 2017 employers with a pay bill of £3m and over will pay the levy at 0.5% of their payroll.
  • Every employer subject to the levy will receive £15,000 to offset the levy
  • E.g. employer X has a payroll of £3.2m. The cost of the levy to them will be £16,000. Employer X will then receive £15,000 to offset this cost and so the total payable to the levy is £1,000.
  • This levy – in the above example, £1000 - will be put into a digital account.
  • These funds will be available to employers to provide training for apprentices.
  • Employers cannot use the levy to pay for the cost of salaries, recruitment or developing apprenticeships etc. It can only be used to cover costs of training.
  • It will apply to all sectors, including public departments.

What are CFG’s concerns?

For more detailed analysis you can download CFG's written evidence to the Sub-Committee on Skills, Education and the Economy. In short, CFG is concerned that charities are on the back foot compared to private businesses when it comes to being able to spend their levy. Given that for many charities much of their income is restricted, they can only spend their funds as determined by the restriction rather than on core costs. This, in addition to the overall volatile funding environment in which charities are currently operating, means that charities across the sector have made limited investment in skills (including developing apprenticeships) and back office operations. Because the levy can only be spent on training costs, rather than the costs of developing apprenticeships, recruiting into these positions and paying apprentices’ salaries, this means that charities will need to invest their limited unrestricted funds on such costs in order to be able to spend the levy at all. An additional challenge, unique to the charity sector, is the lack of a charity sector skills council. This means that there is a lack of strategic oversight regarding skills and training in the sector. This not only means that charities are left in the dark in terms of identifying need, but it also restricts provider’s ability to respond to need and develop relevant training schemes that will up-skill the charity sector’s workforce in a meaningful way. These challenges are exacerbated by the fact that if charities cannot spend their levy in the time given (under current plans this is just over a tax year) money designated for charitable purposes could be redirected to private enterprise. CFG is concerned that charities will face a reduction in donations as people question how much of their money is going to good causes. Find out how CFG believes government can mitigate these challenges on our website.

Key messages from government

The summary of our meeting with the Minister provides a more detailed note of the Government’s response to CFG’s concerns. Below are the key messages to take away. The Minister was explicit that the levy is a payroll tax and charities must use or lose the Levy. There is no room to consider ‘ring fencing’ the funds paid into the levy by charities to ensure that those funds are not redirected out of the sector to subsidise apprentices in the private sector. Any charity that does not spend their levy will have those funds re-directed to another employer, regardless of whether they are charities or not. The Minister highlighted that under current plans, if employers, including charities, cannot spend the funds in their account, they can pass the funds onto organisations in their supply chain or another organisation that they work with. But we are still waiting for clarification on how far charities have a choice as to where the funds can be redirected. The Minister made explicit that there is no scope for the funds in individual digital accounts to cover additional costs such as recruitment, salaries, and so on. It was made clear that the government encourages those charities subject to the levy to see investment in apprenticeships as a good use of charitable funds. The Minister indicated that there will be more than a year for organisations to utilise the funds in their digital accounts - however it was unclear what the mechanism would be or the amount of time such funds could be ‘rolled over’.

Next steps

CFG is continuing to work with the Department of Business, Innovation and Skills (BIS) to ensure that the levy will genuinely work to drive up skills in the charity sector. See the summary of the meeting for details. We continue to push for charity representation on the board of the new Institute of Apprenticeships. We are also in the process of developing a proposal for the use of seed funding to address the lack of skills infrastructure in the sector, something which the Minister agreed is a significant challenge for the sector.

Keep in touch

If you have any questions or concerns about the levy please do not hesitate to get in touch

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