What you need to know about the apprenticeship levy

What is the apprenticeship levy?

 

Businesses started paying the levy in April 2017. The levy is designed to encourage businesses to embrace apprenticeships as a way of meeting their current and future skills needs. It funds Government’s ambition to support 3 million high quality apprenticeships over the life of the current Parliament, i.e. 2015 to 2020.

 

Who pays the levy?

All employers in the UK with a payroll bill greater than £3m per year pay the levy and it applies to employers in all sectors – including those already covered by statutory levy arrangements (e.g. construction and engineering construction).

How much do I have to pay?

The levy is charged at 0.5% of payroll.  All employers receive an allowance of £15,000 to offset against payment of the levy.  So only employers with payroll bills greater than £3m have to pay the levy. There is a ‘connected persons’ rule, so if you operate multiple companies or payrolls, you are only able to claim one allowance and you can choose how to divide the allowance between the different connected companies.

 

For the purposes of the levy, payroll includes all wages, bonuses, commissions and pension contributions on which NICs are due. In technical terms, payroll means the total earnings upon which Class 1 secondary NICs are paid.  It doesn’t include other payments such as benefits in kind.

Worked examples

Employer A

Payroll of £10m per annum

Levy charge = 0.5% x £10m = £50,000

Less allowance of £15,000

Overall levy = £35,000 per annum

 

Employer B

Payroll of £25m per annum

Levy charge = 0.5% x £25m = £125,000

Less allowance of £15,000

Overall levy = £110,000 per annum

The levy explained

How is the levy collected?

The levy is collected monthly through Pay As You Earn (PAYE) alongside Income Tax and National Insurance.

 

Your £15,000 levy allowance is translated into a monthly allowance of £1,250. If your levy liability in a given month is less than £1,250, you don’t have to make a levy payment that month. Any unused allowance will be carried forward into the following month(s) until you’ve used it. If the reverse is true, and you find that you have made levy payments, but not used all of your allowance, you will be given a credit that you can offset against other PAYE liabilities.

 

At the end of the tax year HRMC will operate a rebate system to make sure that you pay the right amount of levy.

How do I access my levy?

You can manage your levy through an account with the Digital Apprenticeship Service, where you can see the funds from April 2017, and spend your first funds from 1st May 2017. Here, you will be able to:

  • See the levy funds you have available to spend in England;
  • Select apprenticeship frameworks and / or standards you want to use;
  • Confirm the training provider(s) you want to use to deliver your apprentices’ training;
  • Confirm the price you’ve agreed with your training provider;
  • Pay for apprenticeship training and assessment;
  • Choose an assessment organisation;
  • Post apprenticeship vacancies;
  • Transfer up to 10% of your apprenticeship levy between companies from 2018.

What happens after I have paid the levy?

  • Employers will be able to get out more than they put in. Government announced in the March budget that they will top up your levy by 10%. This top-up will be applied to monthly funds deposited into your digital account. So if your overall levy, like employer A above, is £35,000 per annum, government will top this up by £3,500, giving you £38,500 in total to spend through the Digital Apprenticeship Service.
  • You won’t actually touch the money again. When you choose which approved training provider(s) you want to work with, the Digital Apprenticeship Service will send the funding direct to them. If you’re in a position to deliver high quality training in house, there will also be the option for you to become an approved training provider.
  • You will be able to negotiate a rate for an apprenticeship with your training provider, up to a maximum cap.
  • If you operate in Scotland, Wales and / or Northern Ireland, you’ll also need to be aware that those nations have slightly different policies regarding apprenticeships. Your levy payment will be split between the nations based on the number of your employees who live in each of the four nations.

What can the levy be spent on?

The levy can be used to cover the direct costs associated with apprenticeship training.

 

Eligible spend includes:

  • Spend on training that supports learners in fulfilling the requirements of their apprenticeship;
  • Spend on formal assessment associated with learners’ apprenticeship.

 

The following spend is ineligible:

  • Apprentices’ wages, whilst fulfilling their mainstream duties and / or whilst undertaking off-the-job training linked to their apprenticeship;
  • The wages of apprentices’ line managers and colleagues supporting them through their apprenticeship
  • Training that is specific to your business and not linked to the requirements of the apprenticeship, e.g. corporate induction, health and safety;
  • Training for employees who are not apprentices;
  • Training costs for apprentices who started their apprenticeship before May 2017.

Who can I spend my levy with?

One of the great things about the levy is that you can choose who you want to work with to deliver your apprenticeship programme. You can choose from a register of approved providers created by the Government through the Digital Apprenticeship Service. All training providers found on the register have passed financial and quality tests.

 

You can choose to work with different suppliers for different specialisms – or let one partner handle everything for you. You’ll know that suppliers on the DAS have met certain quality checks, although you’ll probably want to check them out for yourself as well.

 

If you’re deeply immersed in the apprenticeship world there’s the option of becoming a training provider yourself and training your apprentices via an internal training function. These are quality and audit requirements that you’ll have to meet – but if you’re confident you’ve the right expertise in house, then it’s worth considering.

Is there a limit on how many apprentices I can train?

No. Once you have fully utilised your levy, along with the government top-up, you will still be able to offer further apprenticeships. Government will pay up to 90% and you’ll pay 10% of the costs for activity that exceeds your levy.

 

You may also want to top up your levy to deliver the programme that’s right for you in terms of the breadth of activities you want to include in your programme, over and above what’s required to fulfil the apprenticeship rules. There will be nothing to stop you doing this and paying training providers directly for this.

How long do I have to spend the levy?

Businesses started paying the levy in April 2017.

 

You have 24 months from May 2017 to spend your levy before you ‘lose’ it and can’t get out everything that you’ve paid.

 

As you think about your levy, it’s worth considering the lead times involved in building a substantial apprenticeship programme, in terms of:

  • The time it might take to design the programme that will really work for your business;
  • Getting buy-in from across your business;
  • Mobilising to deliver with whichever training provider(s) you choose;
  • Recruiting the right individuals.

 

So you might want to get a wriggle on if you want to spend all of your 2017 levy!

So what are my options?

If you are an employer subject to the levy, you have a number of options:

  • Start employing apprentices or increase the number of apprentices you employ.
  • Don’t do anything and just pay the levy as a tax. From 2018 you’ll also have the option to transfer up to 10% of your levy funds to another employer.
  • This may open up interesting opportunities for you to work together with other businesses, including in your supply chain.

What if my business is too small to pay the levy?

If you’re not a levy payer, it’s your choice whether to pay to train apprentices – but if you do, there are some pretty substantial government subsidies on offer. You’ll pay just 10% of the cost of training and government will pay 90% (or 100% if you have fewer than 50 employees and take on a 16-18 year old). You won’t have to use the Digital Apprenticeship Service until at least 2018 – although you might want to use it to help you find a training provider.