Information for Employers
The Apprenticeship Levy explained
Changes to the way apprenticeships are funded came into force on 6th April 2017 in the form of a new apprenticeship levy, which will be applied to all employers with an annual wage bill greater than £3 million.
SETA is committed to helping all employers (Levy and non-Levy payers) to understand the Levy and the apprenticeship reforms which are taking place. We will help all employers to make the transition to the new arrangements.
Any employers who are unsure about what they have to do, or who would like more information about existing apprenticeship schemes before the changes are introduced, should get in touch with us at the earliest opportunity.
What is the Apprenticeship Levy?
The levy was introduced as part of the Government’s commitment to create three million apprenticeships by 2020, and is expected to raise £3bn annually across the country. All employers with an annual wage bill greater than £3million will be expected to pay a 0.5% tax on payroll. It will only be paid on any bill in excess of £3million. This applies to all sectors, but in reality it will only affect approx. 2% of employers.
Levy payers will gain access to the government’s Apprenticeship Service Account, which will enable them to utilise the funds they’ve paid in - plus a 10% top-up contribution from the government - for training and development. There’s also a £15,000 allowance available for each tax year, which can be used to offset Levy payments, which operates on a monthly basis and accumulates over the course of the year.
The Government hope the changes will help to bridge the skills gap by encouraging more businesses to invest in future talent and help it fulfil its pledge to create three million more apprenticeships in the UK by 2020.
The levy will replace all taxpayer funding for apprenticeships for companies of all sizes.
What about SMEs that do not pay the Apprenticeship Levy?
Employers who do not pay the apprenticeship levy now also need to use a digital account to pay for apprenticeship training and assessment. This came into being from January 2020.
However, they will be asked to contribute a ‘small proportion’ of funding toward the cost of their apprenticeship training. The employer will make an initial payment to the training provider and the Government will then pay the difference.
The Government will pay 95% towards the cost of training and assessment, and employers pay the remaining 5%. This will be invoiced directly from your training provider.
See the Non-Levy Paying Employers section for further information.
Calculating what you have to pay towards the Apprenticeship Levy
Employers will receive an allowance of £15,000 to offset against their levy payment.
Example: an employer who would pay the levy:
An employer with an annual wage bill of £5million:
Levy sum: 0.5% x £5,000,000 = £25,000
Offset allowance of £15,000, so £25,000-£15,000 = £10,000
This employer will pay a Levy of £10,000.
Work out how much Apprenticeship Levy you have to pay using the Governments Guidance Notes.
What can Levy funds pay for?
Funds can only be used to pay for apprenticeship training and assessment.
They cannot pay for apprentices’ wages, travel or subsidiary costs, managerial costs, work placements, traineeships or the costs of setting up an apprenticeship programme.
How will the Apprenticeship Levy be collected?
The levy is collected every month through the PAYE system alongside income tax and national insurance contributions.
The first time eligible employers had to declare their liability to HMRC was in May 2017 for levy due on their April payroll.
Levy-paying employers have been able to see corresponding funds in a dedicated digital account shortly after their final declaration to HMRC, so after May 22 2017.
What will employers get back?
Employers in England can use their levy contributions to pay for training apprentices.
Unspent funds in an employer’s digital account will expire after 24 months. Basically, it's a use it or lose it situation!
Employers that pay the levy will also receive a 10% top-up from Government to their total monthly contributions in England.
How to access your funds
Will there be any extra financial support?
Employers who take on an apprentice aged 16-18 will receive an incentive or additional payment to help meet the extra costs of employing them.
The same additional payment will be made to employers who take on disadvantaged apprentices aged 19-24 (for example those with an education and healthcare plan provided by the local authority or those who have been in local authority care).
Speak to The Apprenticeship Services Team to discuss the how the incentives work, and how they will be paid.