Apprenticeship levy for Employers
Since April 2017, the way that the government funds apprenticeships changed. All employers operating in the UK with an annual pay bill of more than £3m are now charged a levy of 0.5%. Funding is available for organisations of any size, in any sector. Employers can use their levy money to buy apprenticeship training for employees at all levels and ages. Find out how the levy works with our apprenticeship levy employer guide.
Since April 2017, the way that the government funds apprenticeships has changed. Apprenticeship levy funding is now available for organisations of any size, in any sector. Employers can use their levy money to buy apprenticeship training for employees at all levels and ages.
How does the apprenticeship levy work for employers?
The apprenticeship levy is paid to HMRC by employers through the usual 'pay-as-you-earn' (P.A.Y.E) process. This is then held in a digital fund that you can use to pay for apprenticeship training. As a form of government funding for apprenticeships, a 10% contribution is added to each monthly payment, meaning that for each £1 an employer pays, they have access to £1.10 as a training fund.
This apprenticeship levy funding is received in the form of vouchers to be put towards eligible tuition and training. Find out more about setting up an apprenticeship scheme to strengthen your finance and accountancy function.
Apprenticeship levy explained
The apprenticeship levy was first introduced as a government scheme to help businesses offer more apprenticeship programmes and training. All employers operating in the UK with an annual pay bill of more than £3m are now charged a levy of 0.5%. The levy is paid monthly alongside income tax and national insurance contributions. The funds can only be spent on apprenticeship training for a company’s employees and unused apprenticeship levy funding expires after 24 months. Levy paying employers can transfer up to 25% of their annual funds to another employer to use to train apprentices.
How the apprenticeship levy is calculated
An employer’s pay bill is based on total employee earnings, subject to Class 1 secondary National Insurance contributions (NICs). These include employee expenses and benefits.
The apprenticeship levy calculation and payment is quite easy. The levy is payable through PAYE, alongside income tax and National Insurance. Payment is taken monthly, in real time, so as an employer’s pay bill changes each month, so will the amount of the apprenticeship levy.
How the apprenticeship levy works for levy payers
- The Education and Skills Funding Agency (ESFA) would like all employers to create an apprenticeship levy digital account for the service - an online portal to view, manage and spend their funds on approved apprenticeships - including the ICAEW Level 4 and ICAEW Level 7 apprenticeships.
- Existing and new staff are eligible for apprenticeship levy funding, providing they meet the apprenticeship criteria.
- An employer’s levy payment is ring-fenced in the form of a digital voucher for them to use. They can manage this from their apprenticeship levy digital account. Funds can be used for tuition and assessment costs which are eligible for ESFA funding. Unused vouchers will expire after 24 months. This means that levy paid in September 2019 will start expiring from September 2021.
- The government applies a 10% top-up to monthly funds, so for every £1 an employer puts in, they will have £1.10 to spend.
- What’s more, the government is offering an ‘apprenticeship levy allowance’ of £15,000 to offset levy payments – so an employer has extra money to spend.
- If the funds in an employer’s digital account aren’t enough to cover the cost of training and assessment for all of their apprentices, the government will fund 95% of the cost of training additional apprentices. So the employer pays a 5% contribution.
- Although the apprenticeship levy is based on an employer’s full UK pay bill, they are only able to spend their English proportion on English apprenticeship training. The Scottish proportion of apprenticeship funding has not been ring-fenced for training by the Scottish Government, so this money may be lost.
How apprenticeship levy funding works for non-levy payers
- Employers who do not pay the apprenticeship levy should create an apprenticeship service account to reserve funding and select a tuition provider ahead of someone starting an apprenticeship. Alternatively, non-levy paying employers can contact tuition providers to arrange funding.
- A non-levy fund paying employer is able to fund an apprentice using a co-investment approach. This involves them paying a 5% contribution to the cost of apprenticeship training. The government will fund the remaining 95%, up to the maximum amount of funding available for that particular apprenticeship standard.