Our simple succinct guide to what you need to know
We’ll navigate you through the apprenticeship Levy. We spend a lot of time helping businesses to craft a levy strategy that ensures they get the most out of their money. Our Levy FAQ should answer most of your questions, but if you need any more information just drop us a line at firstname.lastname@example.org
Frequently asked questions
The Apprenticeship Levy was announced in the 2015 November Spending Review. It is essentially an additional payroll tax, set at 0.5% of an employer’s annual pay bill, collected through PAYE.
The levy affects all employers with a presence in the UK, from businesses to charities to schools, regardless of sector, with an annual pay bill of more than £3 million. Groups of companies under a common ownership structure will be treated as one business.
The Levy was introduced in April 2017.
Your pay bill is based on the total amount of earnings subject to National Insurance Contributions. Essentially, any person who is on your payroll and paid through PAYE is included in your pay bill. Earnings include any remuneration or profit coming from employment, such as pay, bonuses, commissions, and pension contributions that you pay National Insurance on.
While the levy is set at 0.5% of an employer’s gross annual pay bill, employers have an allowance of £15,000. So if an employer has a pay bill of £10 million, they will end up paying an annual fee of:
£10 million x 0.5% - £15,000 = £35,000
The levy allowance operates on a monthly basis and accumulates throughout the year. This means you have an allowance of £1,250 a month. Any unused allowance is carried from one month to the next.
The total levy amount is collected monthly by HMRC, and the funding is then made available to employers via a digital account, through which they can pay for training for apprentices. If an employer does not spend their entire levy amount on apprenticeships, then the unspent portion will be made available to other employers to spend on apprenticeships.
If you are part of a group of employers, you must decide what proportion of the levy allowance each employer in the group will be entitled to. This decision must be taken at the beginning of the tax year and will be fixed for that tax year. Each employer will then calculate what they have to pay through the same processes set out above, but using their portion of the £15,000 allowance.
Any apprenticeship levy payment to HMRC is an allowable deduction for Corporation Tax purposes.
Your pay bill will be based on the total amount of earnings subject to National Insurance Contributions. Essentially, any person who is on your payroll and paid through PAYE is included in your pay bill. Earnings include any remuneration or profit coming from employment, such as pay, bonuses, commissions, and pension contributions that you pay National Insurance on.
The government will apply a 10% top-up to your levy account for spending on apprenticeship training in England. They apply the top-up monthly, at the same time the funds enter your digital account. So for every £1 that enters your digital account to spend on apprenticeship training, you will get £1.10. Funds (including top-ups) expire 24 months after they enter your digital account unless you spend them on apprenticeship training.
Funds in your digital account can only be used towards the costs of apprenticeship training and spent with an approved training provider.
They cannot be used to pay for other costs associated with your apprentices or wider training effort e.g. pay, statutory licences to practise, travel and subsidiary costs, managerial costs, or the costs of establishing an apprenticeship programme. Currently, employers are able to transfer up to 10% of the funds in their digital account to other employers in their supply chains or sector to be used on their own apprenticeship training. It was recently announced that as of April 2019, this figure will rise to 25%.
Some employers paying the levy may find that the funds in their digital account aren’t enough to cover the full cost of training all the apprentices they want to employ. In order to support further apprenticeship delivery, the government will contribute 90% of the total costs of the additional delivery.
Every apprenticeship standard and framework is placed in a funding band, which set the maximum amount of funding that can be used towards training costs over the length of the apprenticeship. The same funding bands apply to all employers paying for apprenticeships.
Apprentices who were accepted onto an apprenticeship programme before May 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 do not pay the levy, you won’t need to use the digital apprenticeship service to pay for apprenticeship training and assessment until at least 2019. Currently, you can choose the training you’d like your apprentices to receive and an approved training provider to deliver it, and a price is then agreed with that provider. The government will make a contribution of 90% to the cost of this training.
Your Apprenticeship Levy Checklist
We recommend following the 6 key steps below to ensure your organisation is fully compliant with the Apprenticeship Levy regulation.
The pilot scheme is particularly important - if you don't have any apprentices in your business now and you're impacted by the levy, it's vital you start a pilot as soon as possible to understand exactly what to expect when it comes to employing apprentices.
Understand your Levy Spend
Quantify what your monthly Levy payments are. This should be straightforward; simply calculate 0.5% of your gross annual payroll and divide by 12. At this point, if you’re affected by the Levy the money will already be entering your digital account.
Identify where you have need across your business for entry level talent and then embed apprenticeships within your recruitment plan.
If you’ve never recruited an apprentice before, start small with a pilot scheme - hire a small number apprentices initially and trial your onboarding process.
Approximately 3 months after recruiting your first apprentices, assess the progress of the programme and the impact the apprentices are having.
Now you’ve found the right approach, you’re ready to expand. We’ve found that apprentices really thrive when they have direct peers within the workplace and aren’t left isolated.
Design / develop
Your programme’s working, you’ve expanded it; what next? Now you can look at expanding the range of apprenticeships within your organisation and develop clear progression options.