The apprenticeship landscape was transformed with the introduction of the apprenticeship levy back in 2017. HMRC has dedicated its own internal manual to the workings of the levy. 

The levy is 0.5% of the employer’s pay bill. However, as each employer is entitled to a £15,000 annual levy allowance, it is effectively only payable by employers with a £3m pay bill, and only on the excess over £3m.

Since 2017, employers have worked with the Institute for Apprenticeships and Technical Education (IfATE) to create over 600 professional and vocational qualifications (known collectively as standards) across 15 occupational routes. For example, there are standards for a coaching professional (at level 5) in the business and administration route and payroll administrator (at level 3) and accountancy or tax professional (at level 7), both within the legal, finance and accounting route.

All of the standards available can be accessed using the Find an apprenticeship tool.

The benefits of an apprenticeship

Unlike some commercial qualifications, apprenticeships across the routes are built with industry engagement by a group of employers known as Trailblazers. These develop the standards based on their experience of the knowledge, skills and behaviours that are required for the job role. 

As Trailblazer Chair for the payroll apprenticeships, I use the phrase that the standards are “built by the profession specifically for the profession”; something that sharply contrasts with other available qualifications.

In addition, to encourage employers, some apprenticeships offer incentive payments for younger employees. Plus, don’t forget there is the national insurance ‘holiday’ that applies to apprentices under the age of 25 on payday. This means that no contributions are payable by the employer on the value of earnings up to and including the apprentice upper secondary threshold of £50,270. 

Which employers can offer apprenticeships?

Contrary to common belief, all employers can use the professional apprenticeship qualifications for employees. Yet there are two types of employer:

1. The employer that pays the apprenticeship levy and, therefore, uses these funds to pay for apprenticeships. As this is only payable by employers with a pay bill of over £3m, this represents only around 2% of all employers.
2. The employer that does not pay the apprenticeship levy and, therefore, can enter into co-investment with the UK government. These employers are in the remaining 98%.

Of course, education and skills are devolved responsibilities, and Scotland, Northern Ireland and Wales have their own apprenticeships. So this article is targeted at employers in England that wish to use the English system of apprenticeships. Or, at least, an employer who employs an apprentice whose main place of employment is 50% in England, regardless of where they actually live. This important criterion is documented in Education and Skills Funding Agency’s (ESFA) Apprenticeship funding in England (page 6 onwards), which contains the exceptions to this overriding rule. This is the latest ESFA guidance effective 3 April 2023. Note, however, this guidance may change.

The funding band 

Regardless of whether the employer does or does not pay the levy, a vital consideration of any apprenticeship is the value of the allocated funding band. In respect of the above quoted apprenticeships, the level 3 payroll administrator has an upper band of £10,000 and level 7 accountancy or tax professional has an upper band of £21,000. 

In the simplest terms, the funding band is allocated by the Department for Education in England and designed to reflect the cost of teaching, assessment, and administration. Trailblazer Chairs work with apprenticeship training providers (ATPs) and end-point assessment organisations to come up with this best estimate of costs. After all, if the funding band allocation does not reflect the best estimate of apprenticeship costs, while the apprenticeship may be relevant and appropriate for the profession it is, however, commercially undeliverable.

Importantly, though, the funding band does not represent the cost of the apprenticeship to employers. There is a quite different function of the funding band for employers, as detailed below. 

Employers paying the levy

All apprenticeships under the English regime are managed through the online apprenticeship service which requires the creation of an apprenticeship service account. Through this account, employers can manage their apprentices and access levy funds. 

To create an account, an employer will need their email address, the government gateway login for the organisation, or the accounts office reference number and employer PAYE scheme reference number.

ESFA has produced a number of YouTube videos to guide employers through the process:

• What is the apprenticeship service
• Registering an account on the apprenticeship service (ie, creating an account)
• Adding users, PAYE schemes and organisations to an account
• Recruiting an apprentice using the apprenticeship service (ie, creating an apprenticeship vacancy)
• Adding an apprentice to an account (this is important for ensuring that payments are made to the ATP for the apprentice’s training)
• How to find employers that need a training provider (ie, where an ATP is not available, unlike the ones immediately above)

Levy-paying employers can also transfer up to 25% of unused levy monies to other employers. These videos describe the process:

• Transferring apprenticeship service funds
• Create a transfer pledge and view, accept and reject applications 
• View and apply for transfer opportunities (ie, the function where employers can view other employers who have pledged to transfer monies to fund the apprenticeship training of another organisation’s employees)

Nothing beats the in-detail Apprenticeship funding rules and guidance for employers. Section E211 contains information about levy transfers between employers and references the ‘English percentage’. The English percentage is not openly discussed in communications but is, simply, HMRC’s calculation of the proportion of an employer’s pay bill that relates to employees who live in England. Once HMRC has performed its annual calculation of the English percentage, up to a maximum of 10% will be added as a UK government top-up payment to levy funds.

When drawing down funds to pay for apprenticeship training, the employer needs to consider the funding band. Levy funds can only be used up to the funding band maximum (ie, the £10,000 and £21,000 above). Where the cost of apprenticeship training exceeds that maximum, these become an employer cost. 

Time limits

The general rule is that unused levy funds will expire if unused after 24 months, applicable also to the English percentage top-up from the UK government. So, for example, levy funds entering the online account in January 2022 will be unavailable for use in January 2024. 

The general message, therefore, is use them, transfer them, or lose them!

However, it is important to point readers to the key facts news story that is still relevant, in particular, the section entitled ‘My employee wants to do an apprenticeship programme that lasts longer than 24 months, but my levy funds expire after 24 months. How can I fund this?’. This details how funds entering the online account are used in the order that they enter the account (ie, the oldest funds are used first on a first-in, first-out basis).

Employers not paying the levy

Just because an employer does not pay the apprenticeship levy does not mean their employees are unable to use the English apprenticeship system. This is where co-investment comes into play.

Simply, the UK government will pay 95% of the cost of the apprenticeship up to the funding band maximum. The employer will meet the 5% and any cost of the apprenticeship that exceeds the maximum. This is also where the transfer facility comes into play (the 25% that levy-paying employers can surrender, as described above), as an employer can pledge to fund apprenticeship costs (up to the band maximum) and a non-levy-paying employer can apply to receive them.

All of this must be done through the online apprenticeship service account; therefore, all of the above links are applicable. In addition, the YouTube video Reserving apprenticeship funds is specifically for reserving co-investment funds from the UK government for non-levy-paying employers. See also paragraph 41 in the guidance Apprenticeship funding in England.

Note that where a levy-paying employer has insufficient levy funds but still wants to pursue apprenticeship training (eg, where they have used all of their levy funds on other apprenticeships but still want to employ more apprentices), they can apply to receive a transfer from another levy-paying employer or they could get co-investment.

Time limits

There are no funds to expire (or funds have been used already), therefore, the 24-month expiration is not an issue. Where there is 100% co-investment with the UK government, this agreement funds the apprenticeship through to completion. These funds, though, expire if they are not used within three months of reserving them with the UK government (see E201-E203 in the current version of Apprenticeship funding rules and guidance for employers). 

It is when the employer receives a transfer of funds that things become more complicated and, of course, there are many potential scenarios. See the current version of Apprenticeship funding rules and guidance for employers, E220, E221, E232 and E233 that describe the position for the sending and receiving employers.

Final thoughts

Apprenticeships have been designed by the profession specifically for the profession as a result of identifying industry requirements. The key to anything, though, is imparting the relevant knowledge and communicating this to empower employers. 

It is a commonly held myth that the professional and vocational apprenticeship qualifications are only available to employers that actually pay the apprenticeship levy. This is far from the truth. All employers can access apprenticeships and payment of the levy is not a consideration.

Ian Holloway, Trailblazer Chair for payroll apprenticeships, Payroll and Reward Consultant and member of the Tax Faculty’s Employment Taxes and NIC committee