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The Apprenticeship Levy

In 2016, the government announced their vision to improve the quality of apprenticeships in England, ensuring they met employers’ requirements for skills and set a target of 3 million apprenticeship starts by 2020. The aim is to ensure that employers take responsibility in creating opportunities for our future generation and addressing the skills shortage.

This means that any UK employer, in any sector, with a salary bill of more than £3 million per tax year will pay the apprenticeship levy.

The system is designed to boost the economy, create and develop a more technically-skilled workforce and ensure that large employers invest in learning and development for their employees. It will enable more people to progress into more senior, technically-challenging job roles.

Existing apprenticeship frameworks will be phased out between now and 2020. Read the full Governments Vision for Apprenticeships by 2020 here.

How will the levy affect me?

Category 1

Do you have less than 50 employees and a salary bill of less than £3 million?

  • You won’t make any contribution to the apprenticeship levy
  • All training for 16-18 year olds will be fully funded by the government
  • For apprentices ages 19+ the government will contribute 90% of your training costs, you will contribute the final 10%
  • Funding can be used to develop the skills of your current employees (including graduates), or to recruit apprentices
  • You will receive a government incentive of £1000 for recruiting an apprentice aged 16-18
  • Any member of staff under the age of 25 who is enrolled on an apprenticeship programme will not be subject to national insurance contributions

Category 2

Do you have more than 50 employees and a salary bill of less than £3 million?

  • The government will contribute 90% of your training costs, you will contribute the final 10%
  • Payment is to be made upfront
  • Funding can be used to train up existing staff (including graduates), or to recruit apprentices of any age
  • You will receive a government incentive of £1000 for recruiting an apprentice aged 16-18
  • Any member of staff under the age of 25 who is enrolled on an apprenticeship programme will not be subject to national insurance contributions

If you fit into this category, please click here.

Category 3

Do you have a salary bill of more than £3 million?

  • You will contribute 0.5% of anything over £3 Million from your salary bill into the apprenticeship levy
  • The 0.5% will be paid through a payroll tax
  • Funding can be used to train up existing staff (including graduates), or to recruit apprentices of any age
  • You can access your funds through an online digital account
  • These funds will expire after 24 months
  • You will receive a government incentive of £1000 for recruiting an apprentice aged 16-18
  • For every £1 that enters your digital account you will get £1.10 to spend through a 10% top-up from the government
  • Any member of staff under the age of 25 who is enrolled on an apprenticeship programme will not be subject to national insurance contributions
  • Should your apprenticeship levy funds run out, you will be required to pay 10% of the training costs

How does the levy work?

There is an allowance of £15,000 that reduces the amount of levy that companies have to pay over a year. This means that the levy only applies to anything over £3 Million from your pay bill. The levy is a monthly deduction, so in reality, these costs will be taken in any month where your pay bill is over £250,000.

Earnings in scope for the levy include any remuneration or profit coming from employment of all staff (including directors), such as wages, bonuses, commissions, and pension contributions.

The amount of funding you receive in your account to spend on apprenticeships will depend on how many of your employees live in England and the proportion of your pay bill paid to these employees.

The levy is a devolved policy, so if you have operations based in Scotland, Wales or Northern Ireland, the funding that you contribute for these employees will be worked out by the apprenticeship authorities in these areas. You will not be able to access these funds in your apprenticeship service account.

Employers who pay the levy and are committed to apprenticeship training will get more out than they pay in to the levy and will be entitled to a 10% government top-up to monthly funds.

How do I work out much I need to pay?

Example – employer of 250 employees (all based in England) with an annual salary bill of £5,000,000:

£15,000 allowance means that levy entry point = £3,000,000

Therefore, Levy is payable on £2,000,000 of salary bill

0.5% of £2,000,000 = £10,000 annual levy payment

+ 10% Government Top-Up of £1000

Total annual levy funds available to spend = £11,000

You can use this tool to estimate your own levy funding.

How is the money paid?

1. Your payroll department will calculate, report and pay your levy to HMRC, through the Pay as You Earn (PAYE) process alongside Income Tax and National Insurance from April 2017.
2. Single employers with multiple PAYE schemes will be added together in levy calculations.
3. Groups of connected employers who pay the levy together can pool funds.
4. Your levy payments will be recorded on the Apprenticeship Service website where you can access your account at any time.

What can levy funds be spent on?

Funds can only be used for:
• Apprenticeship training and assessment with an approved training and assessment provider.
• Apprenticeship standards are not just for entry level positions within your business. Your levy payments can be used to fund education and training for your existing workforce at all levels within your organisation.

How do I access my funds?

To access the funds that you have paid into the apprenticeship levy, as well as the 10% top up provided by the government, you will need to have an apprenticeship service account. If you haven’t already, you can set up your account here.

How does the digital account work?

The apprenticeship service is an online digital system (similar to online banking) that has been set up to support the apprenticeship levy. The online service will allow you to financially manage your apprenticeship programmes and help you to estimate your financial spend.

You can see funds appear in your digital account monthly, a few working days after you have confirmed your salary bill and levy contribution to HRMC for the previous month. You can then use the account to set up apprenticeships and authorise payments to training providers.

What happens if I spend all of my levy funds?

If you run out of levy funds, the remaining training costs for that month will come out of the ‘co-investment’ model. This means that any remaining costs that can’t be covered by what is in your apprenticeship service account will be paid for 90% by the government, and you will need to cover the remaining 10%.

What happens if I don’t use my levy funds?

Levy funds expire 24 months after they enter your account unless you spend them on apprenticeship training. Levy spend will be applied on a first in, first out basis and applies to any government top-ups in your digital account.

For example, if you started paying into the levy in April 2017, and you haven’t spent any of the funds, they will start to expire on a rolling monthly basis starting from April 2019.

Can I access my partner company’s funds?

It is now possible to transfer up to 10% of your annual levy funds to another employer in your supply chain. Levy funds expire 24 months after entering the digital account, so the introduction of the funding transfers will ensure that more businesses can benefit from the levy funding. Funds transferred to another employer can only be used for apprenticeship standards, not apprenticeship frameworks.