What is the Apprenticeship Levy?

The Apprenticeship levy, which came into effect in April 2017, is part of the government’s plan to increase the quantity and quality of Apprenticeships. The levy is a new tax which aims to fund three million new Apprenticeships in England by 2020.

All UK employers who have a total employee pay bill above £3m a year will pay the levy. This includes public and private sector, charities and educational providers such as academy groups and universities.  Your ‘pay bill’ is your total employee earnings subject to Class 1 secondary NICs.

If your organisation has a pay bill less than £3m it will not have to pay the Levy. In England, organisations will still be able to access government support for Apprenticeships through the National Apprenticeship Service.

Scotland, Wales and Northern Ireland have their own arrangements for supporting employers to access Apprenticeships and each will be setting out their plans for apprenticeships later in 2017.

Payments

Payments will be collected monthly by HM Revenue and Customs (HMRC) through Pay as You Earn (PAYE), alongside tax and National Insurance.

Levy payments will be treated the same as income tax when it comes to none payment with the same time limits, penalties and appeal procedures.

Employers get a £15,000 fixed annual allowance to offset against the levy payment. e.g. If you have a £3m pay bill, you’d have a levy bill of £15,000 (at 0.5% of employer pay bill). The allowance is offset against this so your levy payment is £0.00. Employers who operate multiple payrolls will only be able to claim one allowance for the levy.

Examples of how much employers would pay for the levy:

Employer A – 1,000 employees, each with a gross salary of £20,000

Annual pay bill: 1,000 x £20,000 = £20,000,000

Levy applied: 0.5% x £20,000,000 = £100,000

After allowance applied: £100,000-£15,000 means £85,000 levy payment

Employer B – 500 employees, each with a gross salary of £20,000

Annual pay bill: 500 x £20,000 = £10,000,000

Levy applied: 0.5% x £10,000,000 = £50,000

After allowance applied: £50,000 – £15,000 means £35,000 levy payment

There are two circumstances where levy-paying employers are likely to have to contribute more:

• where the cost of the training you wish to buy is greater than the funding cap for a particular standard or framework
• where your organisation has spent all your levy contribution and top-up and wants to spend more on Apprenticeship training.

DAS Account

The levy payments will be collected by HMRC and for Apprenticeship training in England will be accessed via a new Digital Apprenticeship Service (DAS) account.

You will be able to use this to pay for apprentice training. On your DAS account you’ll be able to see the training providers you want to deliver the training, chose appropriate Apprenticeship training courses and find candidates for your programmes.

Spending the Levy

In England, you’ll need to register your details online, along with the details of your apprentice. You’ll be able to see how much can be drawn down for each apprentice in the form of the voucher. You can then use these vouchers to spend on training with registered training organisations.

You will not be able to spend an unlimited amount of money on a single apprentice. Funding caps will limit the amount of levy funds you can spend on training for an individual apprentice. The cap will vary according to the level and type of Apprenticeship. For example, more expensive, higher quality training is likely to have a higher cap.

You can spend your levy funds on apprentice training for either existing staff or new recruits as long as the training meets an approved standard or framework and the individual meets the apprentice eligibility criteria.

A range of Apprenticeship training programmes can be funded. They must be provided to an approved Apprenticeship standard.

Funds can only be used towards the costs of Apprenticeship training. They cannot be used on other associated costs such as apprentice wages, travel and subsidiary costs or the costs of setting up an Apprenticeship programme.

When an apprenticeship has started, monthly payments will be automatically taken from your digital account and sent to the training provider. This spreads the cost over the lifetime of the apprenticeship. You will see funds entering your digital account each month as you pay the levy, and funds leaving the account regularly each month as you pay for training.

Funds in the account will expire 24 months after they enter. However, the service automatically uses the funds that entered your account first.

In the first year of the levy, you will only be able to pay for apprenticeship training of your own employees. However, the government understands some employers will want to support their supply chain or other employers in their sector or community by transferring funds. They are committed to introducing this in 2018 and have created a new employer working group to help us further develop proposals for a transfers system that works for employers.

Note: Employers in England who pay the levy will get a 10% top up to their digital accounts. This means every £1 will be increased to £1.10.

Apprenticeships Which Began Before the Levy

We understand Apprenticeships which start before the first levy payment was taken (April 2017) will continue to be funded for their full duration under the current model. Apprenticeship funding is provided through the Skills Funding Agency (SFA), and the size of the contribution varies depending on the sector and the age of the apprentice.

Funding is available for public and private sector employers. The training contribution is paid to the organisation which trains the apprentice. If you are a small business, this will be a training provider. Large employers with a direct training contract can receive training funding themselves or appoint a training provider to deliver training on their behalf.