Apprenticeship Levy

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Apprenticeship Levy
What does it mean for you?
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Apprenticeship Levy

What does it mean for you?

The Government is introducing the apprenticeship levy. It will replace all taxpayer funding of apprenticeships for companies of all sizes. It starts from April 2017 at a rate of 0.5% of an employer’s wage bill, and will be paid through Pay As You Earn (PAYE).

Who will need to pay the apprenticeship levy?

All firms receive an offset allowance of £15,000, equivalent to 0.5% on a payroll of £3 million. Any employer with a payroll above this will be liable to pay the levy.

Example 1: an employer who would pay the levy

An employer with an annual pay bill of £5 million:

  • Levy sum: 0.5% x £5,000,000 = £25,000
  • Allowance: £25,000 – 15,000 = £10,000 annual payment

Example 2: an employer who would not pay the levy

An employer with an annual pay bill of £2 million:

  • Levy sum: 0.5% x £2,000,000 = £10,000
  • Allowance: £10,000 – £15,000 = £0 annual payment

Where companies are connected, only one £15,000 allowance can be shared between them. The division of the allowance must be decided at the beginning of the tax year. So if during the year an employer becomes connected to a company which already pays the levy, the first employer would immediately become liable to pay on their full payroll.

Connected companies may also pool their levy funds to pay for apprenticeship training.

How will the apprenticeship levy be collected?

Each month, the apprenticeship levy will be collected through the PAYE system, alongside Income Tax and National Insurance Contributions. Single employers with multiple PAYE schemes will only have one allowance.

How is the levy payment calculated?

The £15,000 is divided into 12monthly allowances of £1,250. Where 0.5% of a month’s pay bill is higher than the £1,250 allowance, the employer will pay the apprenticeship levy. However, if 0.5% of the monthly pay bill is under the £1,250, the balance of the allowance that is unused will be carried to the next month. This means that some companies might pay the levy only in months where payroll was higher than usual. However if they were under the £1,250 allowance in previous months, the unused balance would be carried forward and deducted from any payment due in the higher payroll month.

What will employers get back from the levy?

Employers in England will be able to reclaim their apprenticeship levy contributions as digital vouchers to use to pay for training apprentices. This voucher system will not apply in Scotland, Wales and Northern Ireland.

The Government has announced that unspent funds in an employer’s digital account will expire after 18 months. So for example funds entering the account in May 2017 will expire in November 2018, unless the employer uses them. The digital account works on a first-in, first out’ basis, so payments automatically draw from the funds which entered the account first.

Employers who pay the apprenticeship levy will also receive a 10% top-up from Government to their total monthly contributions in England. So for every £1 an employer pays in, they can draw down £1.10 to spend on apprenticeship training through their digital account.

Where an employer fully utilises their Levy and requires to train extra staff through the Apprenticeship route, they will be asked to contribute on the same basis as smaller businesses on a co-investment basis, with the government contributing 90% of the total costs.

What can levy funds pay for?

Funds in the digital account can pay for apprenticeship training and assessment (with an approved provider and assessment organisation, up to its funding band maximum). These funds cannot pay for apprentices’ wages, travel or subsidiary costs, managerial costs, work placements, traineeships, or the costs of setting up an apprenticeship programme.

Who sets the cost of the training?

Government funding caps will be set on different qualifications for all employers. This is the upper limit to which Government funding can be used to pay for an apprentice’s training. The Government will announce provisional funding cap levels in June and confirm these in October.

Government funding, either through the apprenticeship levy digital account or co-investment for non-levy payers (detailed below), cannot be used to pay for apprenticeship costs above the funding cap.

If apprentice training costs are above the funding cap, the employer cannot use apprenticeship levy funds to make up the difference. They must fund this additional cost separately.

Where a company has used all the funds in its digital account, any further training will be funded through the ‘co-investment’ model explained below. However, Government co-investment cannot be used to cover training costs above the funding cap.

How will companies outside the apprenticeship levy fund apprenticeships?

Employers who do not pay the apprenticeship levy will not need to use the digital voucher to pay for apprenticeship training and assessment until at least 2018. They will need to choose a training provider from the registered list and adhere to the funding caps for different qualifications, in the same way as larger firms that pay the apprenticeship levy.

Employers that do not pay the levy must contribute “a small proportion” of funding towards the cost of their apprenticeship training. The employer will make an initial payment to the training provider, to meet the provider’s payment schedule. The Government will then pay its share through ‘co-investment’, up to the funding cap limit for that apprenticeship.

The co-investment rate will be published as provisional and confirmed in October – the provisional co-investment figure is Employer 10% of programme value – Government 90% of Programme Value.

How will training for apprentices aged 16 to 18 be funded?

The Government has announced that employers will receive payment via their training provider to help meet the additional costs associated with employing young apprentices. The rates will be announced provisionally in June and confirmed in October and provisionally this will be £1000.00, paid in two instalments at months 3 and 12. For businesses employing less than 50 people, there will be no Co-investment required for this age group.

Will there be any other Government payments?

The same additional payment (as for a 16-18-year-old apprentice) will be made to employers who take on disadvantaged individuals aged 19-24 as apprentices. So for example those with an Education and Healthcare Plan provided by the Local Authority, or who have been in Local Authority care. There will also be additional payments for apprentices with additional learning needs. All these payments will come via the training provider.

For apprentices who do not have the required minimum standard in Maths and English, the Government will pay providers directly for the courses they offer in these subjects.

How will the levy work in Scotland and Wales?

The apprenticeship levy applies to employers across the UK, but only employers in England will receive funding through their digital accounts. However, £0.5 billion from the apprenticeship levy will be allocated to governments in Scotland, Wales and Northern Ireland, who will decide how the funds are spent.

Where a company works across different nations, the amount of levy available for them to spend through the digital account in England will reflect the proportion of the pay bill paid to employees living there. This assessment will be made in early 2017, based on the data HMRC already holds on the home address of employees.

For example:

  • If 100% of pay bill is in England, 100% of levy payment is in digital account
  • If 80% of pay bill is in England, 80% of levy payment is in digital account

What happens if an employer starts an apprentice before the changes are introduced?

Employers that start an apprentice before April 2017 will receive funding under the current system, and that funding will continue for the duration of the apprenticeship.

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