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The Apprenticeship Levy

From 6 April 2017 employers with a payroll of over £3 million are required to pay 0.5% of their payroll costs to HMRC to fund the Apprenticeship Levy. The pay bill is the amount of earnings subject to class 1 NIC, therefore benefits in kind are excluded.

An annual allowance of £15,000 is available. However, connected employers such as a group of companies or MAT will only receive one exemption. This can be shared between the companies/MAT but, if you wish to do this, you must decide on the division at the beginning of the tax year.

Schools which are maintained by a Local Authority, where it also the employer, are expected to be included in the relevant local government target. Other schools will be treated separately and only those organisations with a workforce of 250 or more in England will be in scope.

How is the Levy calculated?

The Levy is calculated each month. The £15,000 allowance is divided into 12 monthly allowances of £1,250.

How will the Levy be collected?

You must declare your liability to pay the Levy to HMRC and from 6 April you will need to tell it how much you owe each month. The Levy is collected via PAYE on a monthly basis.

If your pay bill fluctuates from month to month, you will need to liaise with HMRC as your monthly payment may vary. Otherwise, your Levy contributions will be payable in equal monthly instalments unless or until circumstances change.

How do we access our Levy funds?

Employers in England will be able to reclaim their contributions as digital vouchers to pay for training apprentices. Apprenticeships are a devolved policy which means that authorities in Wales, Scotland and N Ireland manage their own apprenticeship programmes, including how funding is spent on apprenticeship training. Only funds raised against employees whose home addresses appears to be in England will count towards the funds in your digital account.

You will need to register for the service and will be provided with an account. Once you have declared your Levy you will see the balance in your account at the end of the following month. You will also be asked to accept an agreement with the Skills Funding Agency before you can spend funds from your account. Once you have done this, you can:

  • Add or amend information about apprentices and training.
  • Authorise payments to the training provider.
  • View a payment activity in your account and view the balance.
  • Pause or stop a payment to your training provider.

Employers who pay the Levy will also receive a 10% top-up from the government to their total monthly contributions in England. So, for every £1 you pay in, you can draw £1.10 to spend on apprenticeship training through your account.

How long will the Levy funds be available to use?

Unspent funds in your account will expire after 24 months unless you spend them on apprenticeship training. Whenever a payment is taken from your account, the service automatically uses the funds that entered your account first. The government has said that you will be notified in good time when any funds are due to expire so that you can arrange to spend them if you wish. However, it is worth keeping an eye on this to avoid losing out.

What can we spend the Levy funds on?

You can spend the money for apprenticeship training and assessment from a government approved provider. A list is available here: https://roatp.apprenticeships.sfa.bis.gov.uk/download

You can also apply to deliver training to your own apprentices or apprentices of connected companies.

You can choose from two different types of apprenticeship training:

  1. Apprenticeship standards – which cover a specific job role and set out the core skills, knowledge and behaviours required.
  2. Apprenticeship frameworks – which are a series of work-related vocational and professional qualifications with workplace and classroom based training.

You cannot access the funds to pay for wages, travel or subsidiary costs, managerial costs, work placements, traineeships, or the costs of setting up an apprenticeship programme.

So, can we only use the fund to train young people?

No. You can use the money to train any member of staff that you wish to develop provided you do so via the apprenticeship scheme. Apprenticeships can now be applied to any job role, including management, finance and digital and in some cases it can result in a degree or master’s qualification.

Are there any caps on what we can spend?

Yes, the government has set funding caps that apply to each apprenticeship. There are 15 funding bands, with the upper limit ranging from £1,500 to £27,000. There are no lower limits and the bands are not rated by age.

You must agree the total price for each apprenticeship up front including any assessment charges. Once the apprenticeship training has started, monthly payments will be automatically taken from your account and sent to the provider.

What happens if the training charges exceed the cap?

You will have to make up the shortfall. You cannot use your Levy funds to make up the difference, even if you have money available in your account.

What about if we don’t have enough money in our fund to pay the training costs?

You may find that over the course of an apprenticeship the funds in your account aren’t enough to cover the full cost of the apprenticeship, particularly if you only pay a small Levy or have a variable wage bill and pay the Levy in some months but not others.

In these circumstances you are required to pay 10% of the outstanding balance and the government will pay 90% up to the cap band that applies. This is referred to as “co investment”.

Are there any additional burdens on public sector employers?

Schools within the public sector will be set targets by the Secretary of State for the number of apprentices they are expected to employ. The government has recently confirmed that this will be set at 2.3% based on headcount. This means that a school with a headcount of 450 will be expected to start at least 10 apprentices per year in accredited posts which may cause difficulties for a number of educational establishments.

How do organisations that don’t pay the Levy fund apprenticeships?

You will not be able to use the digital apprenticeship service until at least 2018.

However if you wish to recruit an apprentice, you will need to choose a training provider from the registered list, negotiate the cost of the training and adhere to the funding caps for different qualifications in the same way as organisations paying the Levy.

You will be asked to contribute 10% towards the costs of the training and the government will pay the rest up to the maximum amount of funding available for that apprenticeship.

Will we be out of pocket?

That depends on whether you pay the Levy and use the funds. If you use the Levy funds effectively and recruit or retrain existing staff under the scheme, you should be able to “up skill” your work force. Therefore, whilst you may not save money, you can achieve value for money.

Don’t forget that from April 2016 employer NIC (13.8%) will not be charged on Apprenticeship’s earnings when they are under 25 years of age.

Key Contact

Jenny Arrowsmith