When the UK government announced in 2016 that all large businesses should shoulder the responsibility of growing apprenticeship numbers, the solution announced was the so-called apprenticeship levy, introduced in April 2017. This levy aims to raise £3 billion a year to meet the target of funding three million high-quality apprentices by 2020.
With the pressure now on for employers to understand the levy system and make it work for them, we are working with a range of partners to provide useful, objective apprenticeship information.
What is the apprenticeship levy?
The Apprenticeship Levy is a tax on UK employers with a PAYE bill over £3 million per annum. Employers will pay 0.5% of their annual payroll into the Levy, which can be used to pay for apprenticeships. Contributions will be offset by a £15,000 tax-free allowance, paid in monthly instalments of £1,250. So, as an example, if an employer has 250 staff each earning £20,000 the levy will be 0.5% of its £5 million wage bill (£25,000), minus the £15,000 they are given as the offset. This means the levy for this business is £10,000. To fall under the requirement of the levy, an organisation's pay bill is defined as the total earnings of all its employees. It does not include other payments, such as benefits in kind.
Levy payers must declare that they qualify to pay the Levy to HMRC; payments will be collected monthly from 6 April 2017 through PAYE. There will be the same time limits, penalties and appeal procedures for non-payment as there are for income tax. The government will give a 10% top up so that every £1 will be increased to £1.10. Any unspent levy funds will expire 24 months after they enter the digital account. From 2018, up to 10% of the levy funds can be transferred each year to another employer with a digital account or an Apprenticeship Training Agency (ATA).
Levy payers can calculate their levy spend by following the guidance below:
For the first month of the tax year:
- Divide your Apprenticeship Levy allowance by 12.
- Subtract this figure from 0.5% of your monthly pay bill.
For each of the following months:
- Calculate your total pay bill for the year to date.
- Add up your monthly levy allowances for the year to date.
- Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date.
- Subtract the amount of the levy you’ve paid in the year to date.
Non- levy payers can still access the levy funds to part fund apprenticeship training.
What training costs the levy covers
Levy payers will have 100% training costs paid via levy, while non-levy payers will have 90% paid via levy and the employer will pay 10%. Employers with less than 50 staff sending an apprentice aged 16-18 will have 100% of the training costs paid via the levy. All employers that employ an apprentice aged 16-18 will receive a £1,000 incentive.
What the levy can be spent on
Levy funds can be spent on apprenticeship training and assessment that meets an approved standard delivered by an approved training provider. The government will set a funding cap for each apprenticeship standard and the levy can only be spent up to the cap. Any costs over and above the cap must be met by the employer. The levy does not cover any salary or any additional payments or benefits.
The benefits of the levy
Although some business leaders are concerned about the financial implications the introduction of the levy could have, many recognise the benefits that increased support for training could bring, with some seeing it as a solution to the skills gap currently affecting organisations across the country. The apprenticeship fund is available to businesses of all sizes, but only those with a pay bill of more than £3 million will have to pay the levy.
How LSBU can help
By partnering with a specialist training provider, such as LSBU, organisations can create structured apprenticeship and school leaver programmes tailored to their individual needs, which will help them to thrive. Some organisations will use the levy to boost the skills of their current workforce, by using the fund to offer degree-level or higher professional apprenticeships to their existing employees. For levy payers, the LSBU Apprenticeships team is here to help you understand how the levy works, calculate your levy spend and plan how to maximise it. For non-levy payers, our team can help you understand and plan how to fund your staff to undertake an apprenticeship. All of our services are free and impartial.