The Apprenticeship Levy explained

What size of business is subject to the levy?

The levy threshold is calculated by size of payroll. Businesses with a wage bill of more than £3 million will be required to pay the levy. 

How much is the levy?

The levy amount is 0.5% of a company’s payroll, and every employer gets an allowance of £15,000 to offset against the amount they owe.  That’s why it only applies to businesses with a payroll over £3m. 

To explain; a business with a payroll of £6m would have an Apprenticeship Levy payable as follows:

£6,000,000 (payroll) x 0.5% (levy amount) -  £30,000  
£15,000 Less Levy allowance   
= £15,000 Levy amount payable

When will it be payable?

Businesses have been subject to the levy payment since May 2017 and it is payable monthly, via HMRC PAYE returns.

Where does the money go?

All businesses that pay the levy will be able to access their contribution in their online digital apprenticeship service account.  This account can be used to pay for apprenticeships training and assessment in England.

As levy payments go out monthly, businesses will start to see funds appear in their digital account a few working days later.

Businesses are required to to set up their account with the digital apprenticeship service. 

Does the government contribute anything?

Yes. As the money goes into the digital account, it gains a 10% top up from the government. That means for every £1 that enters a business’ digital account it gets an additional 10 pence.

Using the £6m payroll business as an example, if a business pays £15,000 in levy payments throughout the year which is gradually appearing in their digital apprenticeship account, they will also gain an additional £1,500 from government throughout the year too, so they have £16,500 to pay for apprenticeship training and assessment in their digital account.

Is there a time limit on spending the funds raised in a digital account?

Yes. Funds that businesses accrue in their online digital apprenticeship account will expire 24 months after they appear unless they are spent on apprenticeship training. This applies to the top-ups too.

So how will non levy payers pay for apprenticeship training?

Running parallel with the introduction of the Levy there is also a new funding system for businesses that run apprenticeship programmes. The objective of the new system is to increase businesses’ purchasing power and control over apprenticeship training.

To begin with you will choose the apprenticeship you want, and the training provider you want to deliver it, and you will agree a cost for the training with the provider. The government will ask you to make a 5% contribution to the overall cost of training and government will pay the rest.

The government will ask you to pay this directly to the provider and you may be able to spread it over the lifetime of the apprenticeship, to an agreed schedule. As both you and the government make a payment, it’s called ‘co-investment’. The government will pay their part of the training costs direct to the provider.

In some situations, these additional incentives will mean that 100% of training costs to the employer are covered.