Apprenticeship Levy

Employers in the UK that have a wage bill of over £3 million will need to pay the levy. The levy applies to all industries in the private and public sectors.

The pay bill is defined as ‘total employee earnings’ of every employee per year. It is calculated based on the total amount of earnings subject to Class 1 secondary NICs. Earnings include any remuneration or profit coming from employment such as wages, bonuses, commissions, and pension contributions that you pay on NICs on.

The levy is at a rate of 0.5% of the pay bill.

Every employer is given a £15,000 annual allowance, which will be dispersed monthly. This allowance is easiest explained with an example:

Example One: An employer with an annual pay bill of £2,000,000

Levy sum: 0.5% x £2,000,000 = £10,000 = £0 annual levy payment (the total amount of the levy sum is less than the £15,000 allowance)

Example Two: An employer with a pay bill of £5,000,000

Levy sum: 0.5% x £5,000,000 = £25,000 (Minus levy allowance of £15,000) = £10,000 levy to pay annually

NB: There will be a connected person’s rule so employers who operate multiple payrolls will only be able to claim their £15,000 allowance once.

The levy allowance will operate monthly, accumulating throughout the year.

Monthly Levy Allowance
£1,250

Example
Employer with Levy liability in month 1 of £1,000

Monthly Levy Allowance:
£1,000 - £1,250 = (£250)

£250 will be carried forward to the next month and the employer would not be liable to pay the levy in month 1, therefore making the levy allowance for month 2 at £1,500.

The levy is collected through the employers Pay as You Earn (PAYE) Scheme and is payable alongside income tax and national insurance.

Funds in your digital account can only be used towards the costs of apprenticeship training and end point assessment. This must be with an approved training provider and assessment organisation.

Funds can’t be used on other costs associated with apprentices or wider training effort, e.g. wages, statutory licences to practise, travel and subsidiary costs, managerial costs, traineeships, work placement programmes or the cost of setting up an apprenticeship programme.

You can access your funds through a new online Apprenticeship Service account. Employers will need to register to create an account, and link it to their PAYE schemes. They will be able to see funds appear in their digital account monthly and will be able to use this to pay for training and assessment for apprentices in England. The service will also help employers find training providers and assessment organisations. Employers are free to choose their training provider (e.g. their local college or other training provider) from those on the Register of Providers and discuss their needs and delivery.

When you agree to buy apprenticeship training from a particular training provider and the apprenticeship has started, monthly payments will automatically be taken from your digital account and sent to the provider.

If an employer wants to take on more apprentices than the value that their levy contribution will cover, they will be able to apply for ‘top-up’ payments.

The government will apply a 10% top-up to the funds you have to spend on apprenticeship training in England. It will be given monthly, at the same time the funds enter your digital account. That means for every £1 that enters your digital account to spend in England on apprenticeship training, you get £1.10.

Funding caps will be set on different standards/ frameworks. For each apprentice an employer takes on, the employer can obtain a voucher up to the value of the cap for that particular apprenticeship standard.

Yes, you can recruit new staff of train existing staff for an Apprenticeship, as long as it is relevant to their role or progressing them on to different areas to develop new skills.

Funds will expire 24 months after they enter your online account if you don’t spend them on apprenticeship training – this will also apply to any top-ups. Your digital account will let you know in good time when any funds are due to expire so that you can arrange to spend them.

All apprentices who started their apprenticeship programme before April 2017 will be funded for the full duration of the apprenticeship under the terms and conditions that were in place at the time the apprenticeship started. If you pay the apprenticeship levy, you will not be able to use the funds in your digital account to pay for these apprenticeships.

When calculating net costs to your business of the levy, take account of:

• The levy allowance of £15,000 per tax year
• The 10% top-up payments applied monthly
• NI savings that come into effect from April 2016 related to apprentices under the age of 25
• Employer incentives for apprentices aged 16-18
• Funding caps applied to the apprenticeship standards relevant to your apprentice programmes.

Employers can use the online apprenticeship service whether they pay the levy or not. They will help employers to:

• select an apprenticeship standard
• choose the training provider or providers you want to deliver the training
• choose an assessment organisation
• post apprenticeship vacancies

Employers who pay the levy will also be able to:

• see the funds available to spend in England
• set the price agreed with your training provider
• pay for apprenticeship training and assessment through the digital apprenticeship service

By 2020, all employers will be able to use the digital apprenticeship service to pay for training and assessment for apprenticeships.

If you don’t pay the levy, you won’t need to use the digital apprenticeship service to pay for apprenticeship training and assessment.

However, you can access the digital apprenticeship service to choose the training provider, and assessment organisation for your apprenticeship programme using the registers available.

Employers that don’t pay the levy will be expected to contribute 10% towards the cost of apprenticeship training (where applicable), and Government will pay 90% of the funding available in the band for that apprenticeship.

You will pay this directly to the provider and you will be able to spread it over the lifetime of the apprenticeship, to a schedule you agree. As both you and the government make a payment, it’s called ‘co-investment’.

Read the Government guidance in full, here.