The Apprenticeship Levy

The introduction of the Apprenticeship Levy in April 2017 has changed the way that government funds apprenticeships in England. All businesses operating within the UK with a wage bill of over £3million are required to contribute to the apprenticeship levy.

  • If the levy applies to your business you will be required to pay 0.5% of your entire wage bill into the levy. This will be offset against a levy allowance worth £15,000 for each tax year.
  • You will only be able to use your levy payment for government backed apprenticeships.
  • Levy payments will expire after 18 months.

Speak to an advisor at CI Business Solutions on 01206 712727 to make your levy payments work for you.

As the largest college provider of apprenticeships in Essex, we can provide expert advice and guidance on all areas of apprenticeship provision, including helping you find the right apprenticeship for your business, recruiting apprentices, quality delivery and assessment with on-going support and advice.

The online system that employers will use to manage apprenticeship funds is now open for registration to all levy-paying companies. Click here for more information.

What will this cost my business?

Since April 2017 the way that government funds apprenticeships in England has changed. All businesses operating within the UK with a wage bill of over £3 million are required to contribute to the apprenticeship levy monthly via HMRC.

  • If the levy applies to your business you will be required to pay 0.5% of your entire wage bill into the levy. This will be offset against a levy allowance worth £15,000 for each tax year
  • You will only be able to use your levy payment for government backed apprenticeships through providers who are registered on the Register of Apprenticeship Training Providers
  • Levy payments will expire after 18 months.

From April 2017 all existing apprenticeship frameworks and new apprenticeship standards (often referred to as trailblazer standards) will be allocated to Government funding bands.

Funding bands determine the maximum amount of money that Government will contribute for the training delivery and end-point assessment of each apprenticeship. All approved apprenticeship standards have already been allocated to funding bandings with maximum funding caps.

If you take on an apprentice who is between 16 and 18 years old at the start of their apprenticeship, you will receive a payment to help meet the extra costs of employing them. This will be paid to you through the training provider in two £500 instalments at 3 months and 12 months if the apprentice continues in learning beyond this point.

Non-levy paying employers will need to contribute 10% of the maximum funding band as published by the Skills Funding Agency for the delivery of training and assessment for their apprenticeship. Levy paying employers will pay the full cost of the agreed funding band using their Digital Apprenticeship account. Where there are no longer funds in this digital account the Government will co-invest 90% of the funding with the levy paying employer being the asked to contribute the remaining 10% on a monthly basis.

Levy paying employers can estimate their funding contributions through the use of the free Funding Apprenticeship Systems calculating tool.

The agreed funds will be taken from the employer’s digital account to pay the training provider, up to a maximum amount of funding allocated by Government to that particular apprenticeship.

For non-levy paying employers the Digital Apprenticeship Service will not be available until at least 2018. They will need to discuss and agree a price with their training provider

What is the apprenticeship levy?
  • All businesses operating in the UK will need to pay the apprenticeship levy if they are an employer with a pay bill of more than £3 million each year.
  • Employers will pay the levy on their entire pay bill at a rate of 0.5%. However, they will have a levy allowance to offset against this. The levy allowance is worth £15,000 for each tax year. This means employers will need to have an annual wage bill of more than £3 million before they are required to pay the levy.
  • Employers will pay the levy to HM Revenue and Customs (HMRC) through the Pay as You Earn (PAYE) process.
How is the apprenticeship levy calculated?

If you have a pay bill of more than £3 million, your payments will be based on 0.5% of your annual pay bill. This will be offset by a £15,000 allowance.

Example 1: an employer who would pay the levy

An employer with an annual pay bill of £5,000,000:

  • Levy sum: 0.5% x £5,000,000 = £25,000
  • Subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment

Example 2: an employer who would not have to pay the levy

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

  • Levy sum: 0.5% x £2,000,000 = £10,000
  • Subtracting levy allowance: £10,000 – £15,000 = £0 annual levy payment
  • As only payable on pay bills over £3 million (because 0.5% x £3 million = £15,000)
How does the £15,000 allowance work?

The levy allowance will operate on a monthly basis and will accumulate throughout the year.

For example:

  • You will have an allowance of £1,250 a month (£15,000 annually). Any unused allowance will be carried from one month to the next.
  • If you have multiple PAYE schemes and do not use the full £15,000 allowance, you will be able to offset the unused amount against another one of your schemes once the tax year has ended.
Government top-ups to the funds in your digital account
Government will apply a 10% top-up to the funds you have for spending on apprenticeship training in England.

  • Government will apply the top-up monthly, at the same time the funds enter your digital account.
  • For every £1 that enters your digital account to spend in England on apprenticeship training, you get £1.10.
How will I pay the levy?
You will calculate report and pay your levy to HMRC, through the Pay as You Earn (PAYE) process alongside tax and National Insurance Contributions (NICs).
Digital apprenticeship service

From January 2017 you will be able to register to create your account on the Digital Apprenticeship Service. Levy payers will be able to use the full service from April 2017 to:

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

Funds appear in your digital account monthly, a few working days after you have confirmed your pay bill and levy contribution to HRMC for the previous month. The first funds in your digital account will be late May 2017.

It’s expected that non-levy paying employers will be able to fully use the Digital Apprenticeship Service from 2018.

Employers who already pay into an existing industry levy scheme
Some sectors such as Construction already operate a levy through the CITB. If you already contribute to one of these, you will still be required to pay the apprenticeship levy.
How will the apprenticeship levy operate in Scotland, Wales & Northern Ireland?
Apprenticeships are a devolved policy, which means that authorities in each of the UK nations manage their own apprenticeship programmes, including how funding is spent on apprenticeship training.

Government plan to use data that they already hold about the home address of employees. They’ll use this data to work out what proportion of your pay bill is paid to employees living in England. Government are testing the accuracy and suitability of this approach and will provide more details in October 2016.

How long do I have to spend the funds in my digital account before they expire?
  • Levy funds will expire 24 months after they enter your digital account unless you spend them on apprenticeship training. This will also apply to any top-ups in your digital account.
What can I spend apprenticeship funding on?
Funds in your digital account, and funding provided by the Government through co-investment, 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.
Is there support for employing 16 to 18-year-old apprentices?
A £1,000 incentive for employers to help meet the extra costs of employing an apprentice comes into effect from May 1st 2017. All employers investing in a 16-18 year old will receive a £1,000 Government incentive through Colchester Institute. The apprentice must be in learning when the incentive payments are due at 3 months and 12 months. Two payments of £500 pounds will be made directly into the employers bank account.
What other support is available for employers?
To help meet extra costs, you will receive the same payment as you do when you recruit a 16 to 18 year old apprentice, if you recruit:

  • an apprentice who is between 19 and 24 years old and who has an Education and Health and Care Plan provided by the local authority
  • a 19 to 24-year-old who has been in the care of the local authority

If you recruit an apprentice with additional learning needs such as dyslexia, other learning difficulties or disabilities, the Skills Funding Agency will make a payment directly to Colchester Institute to help us with the extra costs of supporting the apprentice’s learning.

What if I use up all the funds in my account?
If you are a levy paying employer and spend your entire levy and 10% Government top-ups, Government will co-fund any additional apprenticeship funding. As the employer you will pay a percentage for additional apprenticeship training after your levy is used, and the Government will also contribute to this.
What are the rules for non levy paying employers?
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 2018.

  • When the new funding system begins in April 2017, as a non-levy paying employer you can choose the training you’d like your apprentices to receive, an approved training provider and an assessment organisation using the registers available on the digital apprenticeship service.
  • You will be required to make a contribution to the cost of this training and Government will pay the rest. The Government will ask you to pay this directly to the provider and you may be able to spread it over the life time of the apprenticeship.
How much will I have to pay towards training an apprentice?

For levy paying employers all funds for training will be transferred directly from your digital account to Colchester Institute on a monthly basis. This will continue for the agreed duration of the apprenticeship. Government funding band values can be found here.

For non-levy paying employers full government funding is available for an apprentice aged between 16-18 years old and where the employer employs less than 50 employees. Full funding is also available for apprentices aged 19 to 24 who have either been in care or has an education health care plan.

An employer contribution fee will be required for:

  • All non-levy paying employers recruiting an apprentice aged 19 or over
  • Non-levy paying employers who employ more than 50 employees and recruit a 16-18 year old apprentice

Contributions will be reflective of the apprenticeship framework/standard and can be discussed and agreed with Account Managers.