Apprenticeship Levy

Why is the levy being introduced? 

The government’s agenda is to increase apprenticeship starts to three million by 2020 – the levy is the ‘logical solution’ to funding that increase. Driven by their productivity agenda, the government is committed to pressing ahead with the introduction of more rigorous apprenticeship standards (The Trailblazer Initiative). Financing this commitment to a step change in the quality and standards of apprenticeship training would have been challenging enough by itself. However, it also comes coupled with a high-profile Conservative manifesto commitment to provide three million apprenticeships over the five-year term of government – which if achieved will be 30% more than was achieved in the previous five years.

At this point, many firms are concerned about the financial implications the levy will have for their business. However, those who pay in and are committed to creating high quality training schemes within their organisation will benefit, and will be able to claim back more than they contribute.

The rate of 0.5% has been set to deliver the increase in quality that business have been asking for while ensuring it does not place an unreasonable burden on employers. This will put the funding of high-quality apprenticeship training on a sustainable footing. Unlike normal taxation, employers can get back the funds that are levied by investing in a sufficient amount of apprenticeship training. Combined with additional reforms which are already underway to improve Apprenticeship quality and quantity.

Apprenticeships have been given equal legal treatment to degrees, and from April 2016 businesses are no longer required to pay National Insurance Contributions for apprentices aged under 25. Apprenticeship targets of 2.3% of headcount have also been set for public sector bodies. The public sector will be able to draw down levy funding like any other employer.

How does the new levy impact your business?

Funding for Apprenticeships will change dramatically in 2017 – with the introduction of the Apprenticeship Levy, and the mandatory employer contribution for non Levy organisations.

From 05 April 2017, employers with a "pay bill" over £3m will be charged a levy of 0.5% of their "pay bill".   “Pay bill” will be based on total employee earnings subject to Class 1 secondary NICs. Non Levy organisations will be required to contribute a minimum of 10% towards the cost of the Apprenticeship programme.

The 0.5% levy is on your full UK payroll bill, not just the amount over £3m. 

The levy will be payable through Pay As You Earn (PAYE) and will be payable alongside income tax and National Insurance.  Payment will be taken monthly, in real time, meaning as your "pay bill" changes each month, the levy amount taken will be reflected. 

HMRC will work closely with employers and providers of payroll services to minimise the burden of implementing these changes. 

Although the levy is calculated based on your full UK "pay bill", employers will only be able to only spend their English proportion on English apprenticeship training. 

The levy payment will then be ring-fenced in the form of an electronic voucher that can be used to purchase training from recognised providers, from May 1st 2017 onwards. Un-used vouchers will expire after 24 months. 

Employers in England who pay the levy and are committed to apprenticeship training will be able to get more out than they pay into the levy. The government will apply a 10% top-up to monthly funds i.e. all funds entering a levy payer’s account will be increased, so every £1 will be increased to £1.10 in value. 

All employers with "pay bills" of over £3m will be required to pay the levy, regardless of whether they subsequently re-claim voucher funds to purchase apprenticeship training.

Based on proposed funding rules, the levy can be claimed back and spent on apprenticeship training for all employees at all levels and ages, including graduates who may be eligible for Level 6 or 7 apprenticeship programmes. The levy will put control of apprenticeship funding in the hands of employers and will encourage employers to invest in their apprentices and take on more. 

The key facts:

Based on proposed funding rules, the levy can be used to fund existing employee development as long as they meet the criteria set out.

Employers who pay into the levy may find that, over the course of an apprenticeship, the funds in their digital account aren’t enough to cover the full cost of the apprenticeship training and assessment they would like to buy. When this happens the government will support and help employers meet 90% of the additional costs. Employers will be asked to make a 10% contribution to the extra cost of training and to pay this directly to the government or chosen provider, however this will be payable over the lifetime of the assisted apprenticeship.

It is estimated 3-5% of an employers’ workforce will need to be an apprentice to fully utilise the levy

Non levy paying organisations will be required to pay a minimum of 10% towards the cost of an apprentice.
Any Apprenticeship starts prior to the Levy “go live” will be exempt from these changes for the duration of the programme – therefore any employers interested in offering Apprenticeship programmes to their existing workforce, should look to enrol onto a programme by mid April 2017 to qualify for full funding.



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