Apprenticeship Levy FAQs
1.What is the apprenticeship levy?
The apprenticeship levy is a tax on businesses that was introduced from April 2017 to help support the government’s target of 3 million apprenticeship starts by 2020. It is designed to make apprenticeship funding sustainable.
2.Who will have to pay the levy?
Employers with an annual payroll over £3 million and operating in the UK (including private, public sector and voluntary sector organisations) have to pay the levy.
3.How much will employers pay?
0.5% of an employer’s total payroll, with a £15,000 allowance to offset the overall cost.
4.How can you get more back than you pay in?
The government applies a 10% top-up to monthly funds entering levy paying employers' online apprenticeship accounts for apprenticeship training in England. All funds entering a levy payer’s account are increased, so every £1 will be increased to £1.10 in value.
The amount an employer will receive each month is:-
Monthly levy paid to HMRC
The fraction of the employer’s pay bill paid to their workforce resident in England
A 10% top-up on that amount. Registration for the apprenticeship service is open to all levy paying employers.
5.How will it work?
The levy is paid to HM Revenue and Customs through the Pay As You Earn (PAYE) scheme and applies to employers across the UK. Access to levy funds is through a digital account via an online apprenticeship service. Levy funds collected one month appear on the online system the following month and can be exchanged for vouchers to spend on training with an approved training provider. The Semta Group (which EAL is part of) can help at every stage, the diagram below shows how it works:
6.What happens to the money once it's paid?
The money is collected by HMRC. Individual employers’ funding for apprenticeship training in England is then be made available to them via their apprenticeship service account. Employers can use this to pay for training for apprentices and will have 24 months to spend it from the moment it hits their accounts. The service will also support employers to identify a training provider, choose an apprenticeship training course and find a candidate.
7.What can the levy be spent on?
Employers can spend their levy funds on the costs of an apprentice’s training, assessment and certification. This includes either existing staff or new recruits, as long as the training meets an approved standard or framework and the individual meets the apprentice eligibility criteria. Employers will also be able to fund qualifications through the levy as long as they are included within approved apprenticeship standards and frameworks, although qualifications are not mandatory.
Employers cannot use levy funds to cover all the costs associated with taking on an apprentice. For example, overheads, supervision costs and apprentices’ wages cannot be funded by the levy.
Employers can fund apprenticeships at the same level or a lower level than an individual’s highest existing qualification, so long as the individual will acquire ‘substantively’ new skills through doing the apprenticeship. Apprenticeships can be used to up-skill and re-skill existing employees as well as new recruits.
8.Who will provide the training?
Employers can only spend their levy funds on apprenticeship training delivered by an approved provider. This could be through buying in training from an approved provider or delivering the training themselves. To deliver training the employer will need to register as an approved provider and be subject to Education Skills Funding Agency (ESFA) quality arrangements and Ofsted inspection. The government has guidance for employers on how to register as an approved training provider and employers can choose a provider from the register of apprenticeship training providers (RoATP).
9.What will employers be able to claim for each apprenticeship?
The government publishes funding bands for apprenticeships. Although they are called bands, they do not have a lower spending limit, just an upper one. There are fifteen bands, up to a maximum value of £27,000.
Employers pay month to month for the apprenticeship training and 20% of the total training is held back and taken from the apprenticeship service account at the end of the apprenticeship, as apprenticeship standards include an end-point assessment. The full lists of bands for frameworks and approved standards is here.
10.What about employers who don’t pay the levy?
The government estimates that 98% of employers won’t pay the levy.
All non-levy funded apprenticeships - offered by both levy payers which have run out of levy funds and non-levy payers - are funded based on a 9:1 ratio of government to employer funding. This is known as ‘co-investment’.
Small employers with fewer than 50 employees can train 16-18 year old apprentices at zero cost, with the government covering 100% of the cost.
11.What if an employer doesn't spent all the money in their apprenticeship service account?
Employers have 24 months to spend all digital vouchers in their apprenticeship service account, on a ‘use it or lose it’ basis. They can transfer up to 10% of their total digital vouchers for a year to another employer which uses the apprenticeship service.
12. What about Scotland, Wales and Northern Ireland?
The government collects the levy from all UK-based employers but the new funding system only applies in England.
The government has devolved Scotland’s, Wales’ and Northern Ireland’s proportion of the apprenticeship levy, calculated through a formula, as part of the block grants to those nations. Those nations' own devolved governments decide how to spend the money - the Scottish Government, for example, will spend about half of its levy funds on apprenticeships and the rest on wider training and skills investment.
13. What is the Institute for Apprenticeships?
A new independent body established by government and led by employers to regulate the quality of apprenticeships within the context of reaching 3 million starts in 2020.
The Institute’s role is to advise on setting funding caps, approve apprenticeship standards and assessment plans. From 2018, the Institute will expand its remit to also cover technical education.