Apprenticeship Levy: what is it and who will it affect?

Navigating the complexities of the UK’s apprenticeship levy can be a daunting task for any business owner, but understanding its intricacies and how it impacts your organisation is still crucial. Our guide is here to demystify the apprenticeship levy and give you clear and easy-to-understand explanations to help you make informed decisions about your training investments and workforce development strategies. Whether you’re a seasoned HR professional or new to the world of apprenticeships, we’ll break down everything you need to know, from who pays the levy to how you can maximise its benefits for your business.

 

What is the apprenticeship levy?

The apprenticeship levy is a tax on UK employers that’s been introduced to fund new apprentices.

The levy was a result of the government’s commitment to increase the quantity and quality of apprenticeships in the UK – the government initially pledged to deliver an additional three million apprenticeship starts in England by 2020.

 

How does the apprenticeship levy work?

The apprenticeship levy is a UK tax on employers designed to fund apprenticeship training across the country. It applies to all employers with a pay bill over a certain threshold and is paid monthly through PAYE. Essentially, it works by taking a small percentage of your total wage bill and placing it into a dedicated training fund. This fund can then be used to pay for apprenticeship training for both new and existing staff.

The government also contributes to your fund, giving you even more to spend on developing the skills you need in your business. However, it’s important to use the funds within a certain timeframe, or they will expire. The apprenticeship levy offers a fantastic opportunity to invest in your workforce and boost your business’s productivity and competitiveness.

 

What is the money be used for?

The funds raised from the levy are used to improve the quality and support of training employers recruiting apprenticeships receive.

Employers who are committed to bringing apprentices into their workforce will be able to get back more than they put in, the government says.

 

Who will be affected?

The levy applies to all sectors and will be inflicted on businesses with an annual pay bill of £3 million or more. Those with a pay bill of less than £3 million will not be affected. Due to the criteria set, less than 2% of UK employers will be affected by the levy.

 

When did the apprenticeship levy start?

It came into effect in April 2017, following its announcement in the July 2015 budget and incorporation into law through Part 6 of the Finance Act 2016.

 

Who pays the apprenticeship levy?

Yes. Regardless of whether or not you currently employ apprentices or plan to recruit any in the future, if your business has a pay bill of £3 million or more, you’ll have to pay the levy.

 

How much will affected businesses pay?

It depends on the business and how much they earn. So, how is the apprenticeship levy calculated? The apprenticeship levy will be charged at a rate of 0.5% of an employer’s payroll.

So, for example, if your business has an annual payroll of £3.5 million, your apprenticeship levy fee for the year would be £17,500.

If your business isn’t connected to another company or charity, you’ll be given an Apprenticeship Levy allowance of £15,000 a year.

In the instance given above, this means the amount you’d need to pay towards the levy would be reduced to £2,500.

 

Are there any monetary benefits?

Yes. If you’re an employer in England who’ll be required to pay the levy, you’ll get a 10% top-up on the money you put in. In practice, this means every £100 you put in will be increased to £110.

Your funds will expire after one year if they haven’t been used on apprenticeship training.

 

How will the levy be paid?

Employers will pay their apprenticeship levy via their normal payroll process.

 

What happens if I don’t pay?

The penalties and appeal process for non-payments will be the same as that for income tax.

 

How much has the government raised?

When it was first announced, the UK Government predicted year-on-year increases, from the apprenticeship levy:

• 2016 to 2017: £0
• 2017 to 2018: £2,730,000
• 2018 to 2019: £2,845,000
• 2019 to 2020: £2,970,000
• 2020 to 2021: £3,095,000

In the 2022-2023 financial year, £3.58 billion was raised in the UK.

 

What happens to my money once it’s been paid?

Your levy will be collected by HMRC. For apprenticeship training in England, you’ll be able to access your funds through a Digital Apprenticeship Service (DAS) account.

On DAS, you’ll be able to check out training providers, choose apprenticeship training courses relevant to your business and find candidates for your programmes.

 

How do I draw out money from my apprenticeship levy fund?

In England, money will be accessible via a voucher system. First, you’ll need to register your and your apprentice’s details online, and then you’ll be able to see how much can be drawn out for each apprentice.

 

What can I use the funds for?

Apprenticeship levy funds may only be used for apprenticeship training costs. They can’t be put towards other associated costs like wages or travel, for example.

 

Get answers to your apprenticeship levy questions

Have more questions on the apprenticeship levy? Join Citation and receive support from our Employment Law consultants through our collection of Employment Law services.

If you need any support with the new apprenticeship levy, give us a call or contact us online.