What you need to know about the Apprenticeship Levy

April 2017 saw the introduction of the Apprenticeship Levy, heralding significant changes to the funding of apprenticeships for all employers. Nearly three years on, the take up remains very low, mainly due to a lack of understanding about how the Levy works. Below we outline some key aspects of the system.

What is the Apprenticeship Levy?

The Apprenticeship Levy was introduced from 6 April 2017 with the stated aim of providing a more sustainable workforce and helping to bridge the UK skills gap.

The Levy has changed the way apprenticeships are funded, requiring larger UK employers to invest a percentage of their annual pay bill in apprenticeships.

Who pays the Levy?

Although many employers don’t pay the Levy, there have been significant changes to taxpayer funding of apprenticeships for all employers. In principle, employers only pay the Levy if their annual ‘pay bill’ is over £3 million.

A pay bill means the total earnings upon which Class 1 employer national insurance contributions (NICs) are calculated.

The Levy is 0.5% of the pay bill, but there is an annual allowance of £15,000. The Levy is reported and paid using the PAYE process. However, there only needs a report on the Levy if the employer:

  • Had a pay bill of £3 million in the previous tax year, or
  • Considers that the pay bill will be over £3 million in the current tax year.

How are apprenticeships now funded?

The government has issued the policy for the funding of apprenticeships in England. Employers in other parts of the UK pay the Levy, but each devolved government has drawn up their own plan for the use of their share of the Levy.

All apprenticeships started from 1 May 2017 have been funded under the new policy. This applies to all employers, including those who do not pay the Levy.

Employers who have paid the Levy

An employer has a digital account to fund the cost of training apprentices. The level of funding is the monthly Levy paid to HMRC, multiplied by the proportion of the employer’s pay bill paid to their workforce living in England. There is a 10% government top up on this amount. Employers have 24 months in which to use the funds in the digital account.

Employers can negotiate the best price for the training they require from a training provider, which can be below the maximum set by the funding band.

An employer who wishes to invest more in training than they have available in their digital accounts will benefit from further government funding through ‘co-investment’, as outlined below.

Co-investment

Employers who are not required to pay the Levy, or who wish to invest more in training than they have available in their digital accounts, will receive government funding through co-investment.

The government funding only applies to amounts up to the funding band limit for any particular apprenticeship.

Special funding for younger apprentices

There are a number of additional measures which focus on apprentices aged 16-18 and apprentices aged 19-24 who have previously been in care or have a Local Authority Education, Health and Care plan. Training providers also receive equivalent funding for these apprentices.

Should you consider taking on apprentices?

Employers may find that an apprenticeship scheme can help to develop their workforce and fulfil their business’s needs, as part of their overall strategic planning.

Apprentices can be new or current employees, aged 16 or over and combine working with studying for a work-based qualification. The government funding outlined here does not, of course, pay the salary of an apprentice. However, from April 2016 the government introduced a 0% rate of NIC for employers of apprentices.

Read more on the Apprenticeship Levy in our fact sheet.

Read our fact sheet

For further advice please get in touch with a member of our Tax team