Apprenticeship Levy Guide and FAQs
What are the key changes?
- Larger Employers will fund their own Apprenticeship programmes. Apprenticeships for smaller businesses will be ‘co-funded’ by the Government and the employer.
- Funding will come through the Apprenticeship Levy paid by large employers with a wage bill in excess of £3million per year
- There will be a new ‘Digital Apprenticeship Service’ which will allow employers to see how much money is in their ‘pot’ to pay for apprenticeship training
- The government will pay a 10% top up to the funds that are paid into the ‘pot’
- There will be additional incentives for the employer based on the size of the employer, the age of the apprentice and on completion of the chosen apprenticeship framework
When exactly does the levy start?
The Government will introduce the apprenticeship levy on 6 April 2017. If you’re an employer with an annual pay bill of more than £3 million, you’ll start paying the levy in May 2017.
Levy Rate & Allowance – How to Calculate what you’ll need to pay
Employers with an annual pay bill of more than £3 million will need to spend 0.5% of their total pay bill on the apprenticeship levy.
However, the Government are introducing a ‘levy allowance’ of £15,000 per year. This means that the total amount companies need to spend is 0.5% of their pay bill, minus £15,000.
Where several employers are connected as a group, they will only be able to use one £15,000 levy allowance. For more info visit the official Government site.
To calculate how much levy you will pay, follow these steps:
- Work out what your total pay bill is: Your pay bill is made up of the total amount of your employees’ earnings that are subject to Class 1 National Insurance contributions. Employees’ earnings include any money they make from employment, such as: wages, bonuses, commissions & pension contributions. We will not charge the levy on other payments to employees, such as benefits in kind.
- Work out what 0.5% of your total pay bill is.
- Subtract the £15,000 allowance.
Each month, you will have to:
- let HMRC know whether you need to pay the apprenticeship levy
- include the levy you need to pay in your usual PAYE payment to HMRC – you should do this by 19 (or 22 if you report electronically) of the following month
Any apprenticeship levy payment to HMRC will be allowable for Corporation Tax.
How does the £15,000 Allowance Work?
For those that pay the Apprenticeship Levy you will be given an allowance of £15,000 each tax year. This means the levy is only payable on payroll bills above £3million as 0.5% of 3,000,000 is 15,000. This allowance accumulates during the year on a monthly basis and any unused allowance rolls over each month.
Top-Ups – How do they work?
The Government will apply a 10% top-up to the funds you have for spending on apprenticeship training in England. We will apply the top-up monthly at the same time the funds enter your digital account. That means for every £1 that enters your digital account to spend in England on apprenticeship training, you get £1.10.
How do Companies access the levy fund & do the funds expire?
Once you have declared the levy to HMRC, you will be able to access funding for apprenticeships through a new digital apprenticeship service account.
Through the digital apprenticeship service all employers will be able to:
- select an apprenticeship framework or standard
- choose the training provider or providers you want to deliver the training
- choose the organisation that will assess your apprentices
- post apprenticeship vacancies
If you are an employer who pays the levy, you can also use the digital apprenticeship service to:
- set the price you’ve agreed with your training provider
- pay for apprenticeship training and assessment
- tell us to stop or pause payments (for example, if your apprentice stops their training, your apprentice takes a break from training or you haven’t received the service you agreed with the provider)
By 2020, all employers will be able to use the digital apprenticeship service to pay for training and assessment for apprenticeships.
The digital apprenticeship service will support the English apprenticeship system only.
If you don’t have enough in your account in a particular month, you will be asked to make a contribution to the extra cost of training and to pay this directly to the provider, rather than through your digital account.
If you are in a group of companies connected for the purposes of paying the levy, your group will be able to collect their funds together into one digital account.
Funds will expire 24 months after they enter your digital account unless you spend them on apprenticeship training with a training provider.
What can the levy be spent on?
Funds in your digital account, and funding provided by the Government through co-investment, can only be used towards the costs of apprenticeship training and end point assessment. This must be with an approved training provider and assessment organisation.
It can’t be used on other costs associated with apprentices or wider training effort. For example wages, statutory licences to practise, travel and subsidiary costs, managerial costs, traineeships, work placement programmes or the costs of setting up an apprenticeship programme.
Does the levy only fund new recruits or can existing staff be developed through Apprenticeships?
The levy can be used to fund any type of Apprenticeship – you can either recruit new staff and train them through an Apprenticeship programme or you can up-skill existing staff to develop your workforce with higher level skills -
Developing existing staff often encourages them to become more productive, have higher morale, produce higher quality work and stay in their positions for longer.
Will Levy Payers have to add additional money to their Levy Contributions to Pay for Training?
Potentially yes, if the cost of the training exceeds the limit of the funding band for the framework or standard.
Employers will also need to contribute additional funds if they have already spent all of their levy funds and wishes to purchase more apprenticeship training. In this case the employer would use the co-investment model to fund the apprenticeship.
What about Apprentices that started before April 2017 and are still on programme?
The levy will not affect the way you fund training for apprentices who started an apprenticeship programme before 1 May 2017. You’ll need to carry on funding training for these apprentices under the terms and conditions that were in place at the time the apprenticeship started.
What if a company doesn’t need to pay the levy?
If you do not pay the levy, you won’t need to use the digital apprenticeship service to pay for apprenticeship training and assessment until at least 2018.
The Government will ask you to make a 10% contribution to the cost of Apprenticeship training and they will pay the rest (90%), up to the maximum amount of Government funding available for that apprenticeship. You will have to pay this directly to the provider and you will be able to spread it over the life time of the apprenticeship. As both you and the Government make a payment, this is called a ‘co-investment’.
Every individual apprenticeship framework and standard will be allocated to a funding band. The upper limit of the funding band will cap the maximum price that government will ‘co-invest’ towards.
To find out more about Apprenticeships and the 2017 reforms:
Alternatively, contact us for more details – firstname.lastname@example.org or call 0113 308 7971.