Apprenticeships and the levy for small businesses

Apprenticeships have changed considerably over the last few years. We’ve got the latest on what’s involved and how your business can benefit from the apprenticeship levy.

Accounting apprenticeships give ambitious individuals the opportunity to achieve AAT qualifications while earning and developing relevant skills and experience. Successful apprentices also get generous exemptions with ACCA, ICAEW, CIMA, ICAS and CIPFA if they decide to carry on with their professional studies.

Anyone who is 16 or older and not in full-time education is eligible to become an apprentice. This now includes existing employees and university graduates – as long as there is substantive new learning involved.

“So, you could put a nursing graduate on an accounting apprenticeship but not an accounting graduate,” says Liz Sebag-Montefiore, director of HR consultancy 10Eighty.

Because there’s no upper age limit, mature apprenticeships are increasingly popular with people looking to change careers.

Key takeaway: Apprenticeships are now open to anyone 16 or older, and not in full-time education, which includes existing employees and graduates.

Apprenticeship funding and costs

To encourage and fund new apprenticeships, the UK government imposed an apprenticeship levy in April 2017 on employers with annual pay bills in excess of £3 million. This compulsory tax is charged at a rate of 0.5% of an employer’s pay bill (whether they employ apprentices or not).

If, like most small businesses, you don’t have to pay into the levy pot, you normally share the cost of training your apprentices with the government – this is called “co-investment”.

Natasha Penny, small business owner, says: “We receive 90% of funding for our current apprentice’s AAT programme through Wiltshire College and pay the remaining 10%. Just think about the saving on course fees compared to if we were to pay them independently.”

The co-investment rate changed last year for new apprenticeships starting on or after 1 April 2019. You’ll only need to pay 5% towards the cost of apprenticeship training and the government will cover the remaining 95% of the funding band maximum (£8,000 per apprentice).

Assuming you employ fewer than 50 staff and your apprentice is under 19, you don’t even have to pay the 5%. “You may be also be eligible for full funding for apprentices aged 19 to 24 if they have an Education, Health and Care (EHC) plan provided by their local authority,” Sebag-Montefiore says.

You’ll have to pay their salary of course, but you can take advantage of a reduced apprentice rate of pay in their first year – currently £3.90 per hour, rising to £4.15 from April 2020. After that, they must be paid the national minimum wage.

“My first apprentice was the only option for me back in 2014 when I couldn’t afford to employ my first full-paid member of staff,” Penny says. “That first year reduced salary really helped me get Busy Books from a sole trader to an employer.”

Key takeaway: Thanks to the apprenticeship levy, small businesses only pay 5% towards the cost of apprenticeship training. You con’t even have to pay 5% if you employe fewer than 50 people, and your apprentice is under 19.

Other benefits of apprentices

Figures released by the government show that 78% of employers who have invested in apprentices report improved productivity. Also, 90% of apprentices stay with the company they trained with after completing their apprenticeship.

Tanya Hamilton, staff partner at McBrides Chartered Accountants in Sidcup, Kent, comments: “You’re bringing staff onboard who are committed and eager to learn, who are likely to adopt your firm’s culture and ethos from the start, and stay with you long-term.”

McBrides currently have two AAT apprentices – Joe (19), a school leaver who joined them in 2017 and Scott (21), who changed careers from retail to accountancy.

Taking on an apprentice allows you to freshen up your workforce, too.

Busy Books’ apprentice Luke (currently 21 and studying the Professional Diploma in Accounting with AAT) is the youngest member of Natasha Penny’s team. “He brings a care-free and fun character to the team which lifts others some days. We also learn from him – vocabulary can be different as times change and of course technology has changed so much, but he has these strengths and knowledge that we, the elders, have not.”

Key takeaway: Apprentices have been linked to improved productivity within a business, and can renew your own enthusiasm for your business ethos.

Potential challenges with apprentices

There’s a general misconception that the admin involved, and actually accessing apprenticeship funding, is complex and cumbersome, but Penny disagrees.

“I find the whole process really simple. Also, we have a dedicated point of contact at Wiltshire Council who helps us with form-filling and the small print.”

The youngsters’ lack of general employment skills is more of a challenge.

“Most apprentices have never done any business correspondence and their Excel and other IT skills may be very basic,” says Farid Gasanov MAAT, director of Q Accountants. “You need to be ready for this and provide relevant training.”

Tanya Hamilton adds that, in comparison, graduates come with a level of maturity, which means they are often client-facing at an earlier stage in their training. “Although our apprentices’ confidence and abilities are growing quickly; they’re already running training sessions for clients and working on-site.”

But what if they turn out not to be quite right for your business? Do you have to keep them on and help fund their training?

“We commit yearly on a per level basis, so if for any reason Luke didn’t work out or changed his mind, we’d be under no obligation to see him through the whole course,” says Penny.

An apprenticeship level can take between 12 and 24 months to complete. If need be, you deal with termination of employment in the usual way.

Key takeaway: Whilst the process is straightforward, most apprentices will need training in basic office skills.

The biggest benefit of taking on an apprentice?

Farid Gasanov says: “We’ve had two AAT apprentices who completed Level 2, and also one who’s recently passed their first exam. Many would say that lower hiring costs are the key benefit, but I’d stress that combining work and study gives the best results: apprentices apply gained knowledge into practice straightaway which in turn helps them reinforce recently learnt material.”

Set up an apprenticeship in 4 steps

1. Get funding

Apprenticeships and funding in England differ to those in Wales, Scotland and Northern Ireland, so contact your regional apprenticeship agency for more information.

2. Find an AAT-approved training provider

You can use our online training provider directory.

3. Enrol and register your apprentice with AAT

4. Set up an Apprenticeship Agreement.

You need to support their study time out of the office (usually one day a week) and provide a mentor at work.

Read more on how an AAT apprenticeship works here.

In summary

Lower employment and training costs make apprenticeships a highly cost-effective way for you to recruit and develop your staff. Why not take advantage of the government’s funding to grow your talent and your business?

Further reading:

Iwona Tokc-Wilde is a business journalist.

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