Your Guide To The Apprenticeship Levy

Year Published: 2016

From April 2017 major changes will be introduced to the way in which the government funds apprenticeships. These changes will be known as the apprenticeship levy. Some employers will now be required to contribute and there will be changes to the funding for apprenticeship training. This will be especially relevant to organisations that have a payroll of more than £3 million, as they will be required to make a payment of 0.5% of any staff costs above this threshold.

The levy payment is held in an account and is available for organisations to spend on accredited apprenticeship programmes within an 18 month period. Each employer has access to their own account and any levy contributions which remain unused at the end of the 18 months will be removed and used more generally to fund apprenticeships.

Key facts about the apprenticeship levy at a glance

  • The amount of payment required for the apprenticeship levy will be 0.5% of your payroll bill (when this bill is over £3 million). This will be paid through PAYE.
  • Organisations with a payroll below the threshold will not have to pay the levy.
  • Payments, once collected, will be stored in a digital account and can be redeemed via approved apprenticeship schemes.
  • The apprenticeship levy cannot be used for additional expenses, overheads and wages.
  • Levy payments must be used within 18 months.
  • For every £1 paid in levy payments, employers will be given an additional 10 pence by the government, paid into their digital account.
  • Organisations not paying the levy, will continue to receive government support. This will be migrated to a digital account from 2018.

Have a question about the levy apprenticeship? We have the answers below.

Will I have to pay the levy?

 The apprenticeship levy applies to all organisations based in the UK and if your payroll exceeds £3 million you will have to pay the levy. For the purposes of calculating your levy payment, payroll is considered to be the total employee earnings subject to class 1 secondary National Insurance Contributions (NICs).

There are no exemptions from paying the levy if you are above the qualifying amount and organisations based in all four countries of the United Kingdom will have to pay.

How much will I have to pay?

Employers will receive a fixed annual allowance of £15,000 to offset against the 0.5% levy payments, meaning any organisation with a payroll of up to £3 million will not have to pay the apprenticeship levy. As shown below for Organisation 1.

If your payroll is above £3 million the allowance is not enough to offset the levy liability, therefore payment will be required as shown below for Organisation 2.

You can work out the cost of your payroll by using this calculation: number of employees x mean average salary = payroll cost.

Organisation 1 Organisation 2
50 employees with payroll costs of £1 million. 200 employees with payroll costs of £4 million.
Calculation for levy payment: Calculation for levy payment:
  • Levy = 0.5% X £1,000,000 = £5,000
  • £5,000 – £15,000 (levy allowance) = £0 annual levy payment
  • Levy = 0.5% X £4,000,000 = £20,000
  • £20,000 – £15,000 (levy allowance) = £5,000 annual levy payment

How is the levy payment collected?

Your levy payment will be taken monthly through the Pay as You Earn (PAYE) process alongside tax and National Insurance Contributions (NICs). You are responsible for declaring the monthly amount that you must pay, the month after you have calculated the liability.

What can levy payments be spent on?

Levy payments can be used on a number of current and new apprenticeship programmes.

Funds in your account can only be spent on the cost of training and end point assessments. It cannot be used for wages or expenses.

Do levy payments have to be used for new staff?

No. You will be able to use your levy payments both to attract new talent to your organisation and also to support existing staff in developing new skills and professional development. An example is Degree Apprenticeships, which can be tailored to complement your employees’ career development.

Is there a limit to what can be spent on one apprenticeship?

Yes. Funding caps will be in place and will vary depending on the type of apprenticeship programme.

How do I manage my levy payments?

You will be able to access your levy funds through the digital apprenticeship service. You will need to register for the service and you can do this from January 2017.

Is there a time limit on levy payments?

Although levy payments are collected monthly, they will expire after 18 months unless they have been spent on approved training. This also applies to any top-up funds. To minimise expiry, the oldest funds in your account will be spent first.

Are there other incentives available?

There will be additional support paid to you for taking on an apprentice under 19 years of age or for enrolling an apprentice with additional needs.

Further additional payments may be available and will vary by programme, these incentives will be paid via your training provider.

How does funding work for organisations with a payroll of below £3 million?

The government will continue to make a substantial contribution towards apprenticeships for organisations using a system of co-investment.

The exact amount employers will have to pay will be announced before the end of 2016. Watch this space for more details.

Once an organisation has made a payment to a training provider, the government will contribute the remainder of fees up to the maximum for that particular apprenticeship. In time, these payments will also be made through the digital apprenticeship service. Although this won’t be until 2018 at the earliest and could be after that.

For more information about the apprenticeship levy or any advice, please contact our Employment Law and HR team on 0161 475 7676.

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