In the first year of the Apprenticeship Levy, you can only fund apprenticeship training for your own company. However, the government is planning to introduce the ability for firms to transfer training funds to other firms linked to their organisation.
The Apprenticeship Levy came into effect in April 2017. It is part of the government’s aim to create 3 million new apprenticeships in England by 2020 and to encourage employers to invest in apprentices. Levy funds can be used for apprentice training for existing staff or new recruits as long as the training meets an employer-approved standard and the candidate is eligible.
Funds will expire 24 months after they enter your digital account unless you spend them on apprenticeship training.
UK employers with an annual wage bill of over £3 million are required to invest in apprenticeships. The Levy funds can be used for approved apprenticeship programmes that meet employer-approved apprenticeship standards. The training is for existing staff or new recruits who meet the eligibility requirements.
The Apprenticeship Levy is UK-wide, so contributions are based on the pay bill for all UK employees. A formula will be used to allocate the monies between the nations. Employers will be able to spend the levy on employees who work in England.
The levy is collected by HMRC and there is currently no way of separating out the payroll costs between the nations. The government is working with the devolved administrations to ensure it works simply and fairly for employers wherever they are in the UK.
If you are part of a group of employers, you must decide what proportion of the levy allowance each employer in the group will be entitled to. This decision must be taken at the beginning of the tax year and will be fixed for that tax year. Each employer will then calculate what they have to pay through the same processes set out above, but using their portion of the £15,000 allowance.
You can find out more about funding at GOV.UK: Apprenticeship funding: how it will work
The Levy rate is 0.5% of the total wages bill for employers (in all sectors and industries) who have a total employee pay bill of more than £3 million a year.
Use the Apprenticeship Levy calculator to estimate your contributions.
The government is encouraging employers to support young people in quality apprenticeships by providing additional funding incentives:
- To offset the Levy contribution, the government provides an allowance of £15,000 to Levy-paying organisations.
- If you employ a 16- to 18-year-old apprentice, you will receive £1,000 to help meet training costs.
- The £1,000 payment also applies if you employ a 19- to 24-year-old apprentice who was formerly in care or has an Education and Health Care plan.
- Those employers who contribute to the Levy benefit from a 10% top-up to their Digital Service Account.
- If employers use up all of their Levy funding pot, they only need co-invest 10% for additional apprenticeships training, the government will fund the balance of training cost.
- Employers with a wage bill of less than £3 million do not contribute to the Levy but are required to co-invest 10% of training costs with the government funding the balance.
If you contribute to the Levy, you will be able to see the funds you have available for apprenticeships online. To do this you will need to register for, or use your current Government Gateway account. Log in to your account and add the details for the PAYE scheme you will use for your apprenticeship. You will then be able to manage your apprenticeship by adding apprentices’ names and quickly and easily authorising training provider payments.
If you do not pay the Apprenticeship Levy, you won’t need to use the Digital Apprenticeship Service to pay for apprenticeship training. You can arrange this directly with your training provider. The government will contribute 90% to the cost of this training.
The levy is paid by all UK employers (in all sectors and industries) who have a total employee pay bill of over £3 million a year. Groups of companies under a common ownership structure will be treated as one business.
If your organisation is an SME or small business with a pay bill of less than £3 million, you will not have to pay the levy.
The levy rate is 0.5% of your total pay bill – that is your total wages subject to Class 1 secondary NICs.
Your pay bill will be based on the total amount of earnings subject to National Insurance Contributions. So, any PAYE employee on your payroll would be included in your pay bill. Earnings include any remuneration or profit coming from employment, such as pay, bonuses, commissions, and pension contributions on which you pay National Insurance.
Levy payments are subject to the same time limits, penalties and appeals as income tax.
Any Apprenticeship Levy payment to HMRC will be an allowable deduction for Corporation Tax purposes.
Funds in your digital account, can only be used towards the costs of apprenticeship training with an approved training provider. They cannot be used to pay for other work expenses or other training.
The training must be delivered by an approved provider such as CCCT. If you want to deliver the training yourself, your organisation must be registered as an approved provider and will be subject to Skills Funding Agency (SFA) quality arrangements and Ofsted inspection.
Every apprenticeship standard and framework is placed in a funding band, which will set the maximum amount of funding that can be used towards training costs over the length of the apprenticeship. The same funding bands will apply to all employers paying for apprenticeships.
Funding caps will limit the amount of levy funds you can spend on 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.
If the cost of your training is greater than the funding cap then you can simply contribute more to the Apprenticeship Levy.
You will also need to top up your levy account if your organisation has spent all your available levy allowance but wants to spend more on apprenticeship training.
Apprentices who started an apprenticeship programme before May 2017 will be funded under the terms and conditions agreed when the apprenticeship started.