Apprenticeship Levy

About Apprenticeship Levy

The Apprenticeship Levy is a financial contribution made by employers to fund and support apprenticeships to assist the UK in economic growth. The levy will be introduced from April 2017 and will be collected by HMRC via PAYE as a hypothecated tax. The levy amount will be kept in the company’s digital levy fund, which can only be used to purchase Apprenticeship training.

The levy will affect employers in all sectors and will only be paid on annual paybills (wages) in excess of £3 million. The levy will be charged at a rate of 0.5% of an employer’s paybill of amounts over £3 million. All employers will receive an allowance of £15,000 to offset against paybills up to £3 million. This means that less than 2% of UK employers will actually pay a levy.

Where companies pay a levy, the Government will contribute an additional 10% top-up to support employers to access more apprenticeships for their business. The levy and top-up will be kept in the company’s digital account to be used to pay for apprentices training which is offered by approved Apprenticeship training providers such as SFX.

To help understand how the levy will be calculated and if an employer will be required to pay an Apprenticeship Levy please review the following examples:

Apprenticeship Levy Summary

  • The government is reforming the way Apprenticeship Training is managed moving all emphasis from Training Providers, Colleges and Awarding Bodies and placing control of the process into the hands of the employers.
  • The government will introduce an employment Levy of 0.5% based on an employer’s wage bill, if over £3m, to fund Apprenticeship Training from April 2017
  • The Government will top up levy by 10% each month
  • Unspent money will lapse after 18 months
  • Employers design Apprenticeship Standards replacing current frameworks (framework will cease from 1st May 2017)
  • Creation of an Institute of Apprenticeships to oversee the regulation, design and delivery of apprenticeships overseen by a board made up primarily of employers
  • A Creation of a Digital Apprenticeship Service (DAS) for employers to simplify the process of finding apprentices and training providers
  • You will now be able to enrol staff on to an Apprenticeship scheme at a lower level than their prior attainment so long as they are acquiring significant new skills. This means, now you could enrol a graduate to your apprenticeship scheme so long as they are entering a new role.
  • All employers regardless of size will need to enter in to a financial arrangement with their chosen provider (such as SFX).
  • 20% of the training value will be held back until the learner has attempted an end point assessment for Apprenticeship Standards at the end of their programme.
  • Further Government updates will follow in October 2016 & December 2016 following which we expect the full process to be finalised in preparation for April 2017.
Apprenitceship levy

How is the Levy calculated?

Employer of 100 employees, each with an annual gross salary of £20,000

Wage bill: 100 x £20,000 = £2,000,000

Levy sum on wage bill: 0.5% x £2,000,000 = £10,000

Levy payment: £10,000 – £15,000 (Allowance) = £0 (No levy)

This employer will not pay the Apprenticeship Levy as the levy sum on wage bill is less than £15,000.

Employer of 250 employees, each with an annual gross salary of £20,000

Wage bill: 250 x £20,000 = £5,000,000

Levy sum on wage bill: 0.5% x £5,000,000 = £25,000

Apply allowance: £25,000 – £15,000 (Allowance) = £10,000 levy payment

This employer will be required to pay Apprenticeship Levy of £10,000 , which will be kept in their digital account to invest in Apprenticeship training. The government will give a top up of 10% so the total amount in the digital account will be £11,000.

Useful links

Employer size and benefits

You will not be required to pay the Apprentice Levy but will still benefit from the following:

  • You will receive a £1,000 incentive for employing an apprentice aged 16-18 years old. This will be paid in 2 parts after months 3 and 12 of the apprenticeship.
  • If you employ an apprentice aged 16-18 the government will fund all of their training costs.
  • You will receive government “co-invest”. For every £1 you contribute the government will contribute £9 for any learner 19+.
  • Employer contributions will be made directly to the Training Provider (such as SFX) for the first year
  • Small Employers (under 50 employee’s) who employ a 16-18 year-old apprentice will not have to make any contribution to these learner’s Apprenticeship training costs.
  • Where eligible you can apply for an AGE grant (£1,500 per learner) to spend on supporting a new apprentice up until 31st July 2017 at which point the scheme will be reviewed.
  • You will not need to pay Employer National Insurance contributions for any Apprentice staff aged under 25 (Approx. £2,066 for an employee on NLW for 40 hours per week) where annual salary does not exceed £43,000.
  • You will not need to contribute towards maths, English or Additional Learning Support, this will be funded separately by the government.

You will not have to pay the Apprentice Levy but will benefit from the following:

  • You will receive a £1,000 incentive for employing an apprentice aged 16-18 years old. This will be paid in 2 parts after months 3 and 12 of the apprenticeship.
  • You will receive government “co-invest”. For every £1 you contribute the government will contribute £9.
  • Employer contributions will be made directly to the Training Provider (Such as SFX) for the first year.
  • You will not need to pay Employer National Insurance contributions for any Apprentice staff aged under 25 (Approx. £2,066 for an employee on NLW for 40 hours per week) where annual salary does not exceed £43,000.
  • You will not need to contribute towards maths, English or Additional Learning Support, this will be funded separately by the government.

You will pay the Apprenticeship Levy to HMRC via your PAYE system. However, if you take on apprentices you will gain significant back from the investment. In summary:

  • You will pay a levy of 0.5% of your total salary (less £15,000) this is only redeemable against Apprenticeship Training.
  • Your first payment will be for April 2017 payroll and you will have visibility of this on DAS from May 2017.
  • You will be able to manage your Levy account via DAS.
  • You will receive a 10% top up on your levy. So, for every £1 that enters your digital account to spend in England on apprenticeship training, you get £1.10.
  • You will receive a £1,000 incentive for employing an apprentice aged 16-18 years old. This will be paid in 2 parts after months 3 and 12 of the apprenticeship.
  • You will need to register and create your Digital Apprenticeship Service account from January 2017. Once created you will need to verify your PAYE schemes and link them to your account.
  • Once all your levy is spent you will be able to enter the “co-invest” system. For every £1 you contribute the government will contribute £9.
  • You will not need to pay Employer National Insurance contributions for any Apprentice staff aged under 25 (Approx. £2,066 for an employee on NLW for 40 hours per week) where annual salary does not exceed £43,000.
  • You will not need to contribute towards maths, English or Additional Learning Support, this will be funded separately by the government.

Why should you take an apprentice?

Apprenticeships are a unique way to grow your own workforce; they combine on-the-job training in your organisation with off-the-job learning. The learning takes place in context and provides a real understanding of the working world, combining practical skills with theoretical knowledge. They thus offer a career route into your organisation and an invaluable opportunity to grow the skills you need now and in the future. Apprenticeships can also help to improve your organisation’s staff retention and engagement, as they can be used to further develop your existing workforce. Smaller employers can benefit from government incentives/grants to help pay for training costs, whereas larger employers, those with annual staff paybill of £3m, are required to fund from their digital levy fund, which will be in place from April 2017.