A Guide to The Apprenticeship Levy for Employers

In the last few years, the UK government has been keen to ensure that British businesses are more empowered to realise the considerable benefits that apprenticeships can offer in terms of workforce planning and providing access to skills.

With key skills gaps and shortages having hampered growth for many organisations over the last few years, a growing awareness is emerging that this problem cannot be solved without greater investment in skills and knowledge acquisition programmes. However, many companies lack the funds and resources to take any action on this front.

The Apprenticeship Levy scheme was devised to provide a solution to this by introducing a new tax that will raise money for companies to spend on apprenticeship training. The wide-ranging programme has had a considerable impact on the business community - meaning it is essential that employers make themselves aware of how to use the apprenticeship levy appropriately.

In this article, we present an employer's guide to the apprenticeship levy to help you understand how you can make the most of your apprenticeship funding. We provide a helpful definition of the apprenticeship levy and highlight how you can access your funding and dive into the rules of the levy and what the apprenticeship levy can be used for, before discussing other variables that you might wish to consider. 

What is the Apprenticeship Levy?

Introduced in April 2017, the Apprenticeship Levy requires all companies that pay more than £3 million in wages to contribute 0.5 per cent of their overall salary bill into an independent fund. It applies to all organisations operating in the UK, including private, public and voluntary sector bodies.

A £15,000 allowance was agreed to offset the cost, with the government adding an extra 10% in England to the overall funding pot. This apprenticeship funding for employers allows businesses to access a plethora of government-funded apprenticeship courses that they can use to support their team development initiatives. 

Who Needs to Pay the Apprenticeship Levy? 

As mentioned above, any employer that pays more than £3 million in wages will be required to pay the apprenticeship levy. This also applies if your organisation is connected to any companies or charity for Employment Allowance reasons and has a combined annual pay of £3 million. You will still need to pay the apprenticeship levy even if your organisation already contributes to an industry-wide training agreement.

Organisations with a wage bill below £3 million will not be subject to the levy. However, these employers will still be able to access funding for up to 10 employees, with the government contributing 95% towards the cost of apprenticeship training. 

The Goals of the Apprenticeship Levy

The aim of the new levy will be to hand the control of apprenticeship funding to employers, empowering them to get what they need from the training market.

Access to levy funds is offered through an online apprenticeship service that allows companies to receive vouchers to spend on training with an approved provider. In doing so, the government hoped that businesses would be able to help it make good on its commitment of three million new apprenticeship starts by 2020. Government data shows that by 2020 there were 2,532,700 apprenticeship starts and this missed target has been attributed to COVID-19 disruption. 

How Can Employers Access Apprenticeship Levy Funding?

It is estimated that around 1.3 per cent of UK employers are liable to pay the new levy, which will be paid to HM Revenue & Customs through the Pay As You Earn (PAYE) scheme once the £15,000 allowance afforded to each company is taken into account.

Once collected, the cash will appear on the Digital Apprenticeship Service the following month, where employers can access the resources via their apprenticeship service account. They will then have 24 months in which to spend it, allowing them to finance apprenticeship training, identify a training provider, choose an apprenticeship training course or find a candidate.

This time limit works on a "use it or lose it" basis, although from April 2018 it will be possible to transfer up to ten per cent of digital vouchers for a year to another employer that uses the apprenticeship service.

As of April 2024, there have been some changes to how the government funds apprenticeships. While the rules largely remain the same for larger employers, SMEs can now receive full funding for apprenticeship programmes for workers below the age of 21. Likewise, employers can now transfer their funding to other businesses to help them take on and train new apprentices. 

Some important things to consider:

• After 24 months, any unused levy funds will expire and be returned to the government.
• Non-levy paying organisations can now receive full funding for apprenticeship training programmes, so long as the apprentice is below 21 years old. 
• If your monthly payroll exceeds £3 million, you are already invested in the levy. 

Apprentice Levy Rules 

Some nuances to the apprenticeship levy can make it difficult for employers to ascertain whether they are liable and where the levy funding can be used. To help you gain a much more accurate understanding of the scheme, we thought it would be useful to dive into some of the rules of the apprenticeship levy and how they might apply to employers. 

Some of the most crucial rules for employers are:

• The levy rate is set at 0.5% of an employer's pay bill. However, each employer receives an annual allowance of £15,000 to offset against their levy payment.
• The funds collected through the levy are intended to be used for apprenticeship training and assessment costs to improve the quality and efficiency of apprenticeship courses across multiple sectors. 
• Employers can only spend their levy funds on apprenticeship training provided by registered training providers and assessment organisations that are listed on the Register of Apprenticeship Training Providers.
• Levy funds expire after 24 months, so you must utilise your levy funding as soon as possible. 
• Apprenticeship levy funding must only be used to fund training or end-point assessments, it cannot be used to pay apprentice wages. 

What can the Apprenticeship Levy be used for? 

The apprenticeship levy fund can be used to cover the costs of an apprentice's training, assessment and certification. This may pertain to either existing staff or new recruits, provided that the training meets an approved standard or framework, and the individual conforms to apprentice eligibility criteria.

Apprenticeship Training

The main use for the levy funding comes in the form of apprenticeship training and education. The levy funds are topped up each month with a 10% contribution from the UK government which allows you to access even more training courses. Once you have selected an apprenticeship training provider and you have agreed to the price of the course, your provider will be paid out of your digital account each month.

Qualifications and Assessments 

Employers will also be able to pay for qualifications using these funds. This can help your apprentices feel more accomplished and will give them a valuable certification. It is not mandatory for training courses to provide qualifications, but the chosen provider must adhere to approved apprenticeship standards and frameworks. 

The funding from the apprenticeship levy can also be put towards assessments as part of the training programme. This can be very beneficial as you can use your funding to provide a much more involved training programme for your apprentices. 

Upskilling Existing Employees 

While the apprenticeship levy is primarily aimed at funding training for new hires, employers can also utilise levy funding to upskill their existing employees. By enrolling your current workforce on apprenticeship training programmes, you can invest in the development of your employees. This can help organisations face obstacles like skill gaps and staff retention as your staff will be more adept with their work.

Apprenticeship Levy Guidance 

It is worth noting that levy funds cannot be used to cover costs associated with taking on an apprentice, including overheads, supervision costs and wages. However, it will be possible to receive support for apprenticeships at the same level or lesser than an individual's current highest existing qualification; as long as it can be proven that they will acquire substantively new skills through the apprenticeship.

Other Variables and Bonuses to Consider

Although the basic tenets of the levy are straightforward enough, the scheme encompasses several variables to ensure it meets the divergent needs of businesses of various sizes.

Support will be available for apprenticeships that cover a range of levels, from semi-skilled operators (level 2) through to postgraduate engineers (level 7), while a total of 15 funding bands are available, up to a maximum value of £27,000. In each case, employers will pay month-to-month for the training, with 20% of the total cost held back and taken from the service account at the end of the apprenticeship.

Additional support is also available in certain circumstances. For example, the government will fund 100 per cent of apprenticeship training costs for employers with fewer than 50 employees, if the apprentice is aged from 19 to 24 years old and was formerly in care, or has a local authority education, health and care plan.

Incentive payments of £1,000 are offered to any businesses that provide apprenticeships to young people in this demographic, or to those aged between 16 and 18.

By offering these perks to those who provide training to young people from poorer backgrounds, the government is hoping to ensure the benefits of the Apprenticeship Levy can be felt by workers and businesses alike.

FAQs

What is a levy transfer? 

As part of the apprenticeship levy service, employers can transfer a portion of their levy funds to another employer or organisation. This is called a levy transfer and allows employers to share their funding before the 24-month ‘use it or lose it’ period. This was implemented in 2019 to provide greater flexibility with apprenticeship levy funding.

It is important to note that only 25% of training funds can be transferred between employers and this is calculated based on the amount of levy funds declared in the previous tax year and the percentage of employees in your workforce that are working in England.

You can transfer your funding to any other employer, even if they are not in receipt of apprenticeship levy funding. This means that you can invest in training for your local area or within a particular industry. You can even transfer the funding to a charity that is connected to your business, so long as it does not exceed your levy transfer allowance. 

What are some of the disadvantages of the apprenticeship levy?

While the apprenticeship levy has benefitted many organisations and workers since its introduction, it’s important to be aware of the limitations of this scheme. Some of the issues associated with the apprenticeship levy were discussed in CBI’s 2019 report, which highlights access for employers and a lack of flexibility as major pitfalls of the scheme. 

The biggest concern was that employers were not approaching the levy in the right way, viewing it as a tax in disguise. This creates a barrier for employers and organisations, highlighting that a greater understanding of the apprenticeship levy and how to use it is required. 

How much does the government pay towards apprenticeships? 

Apprenticeship co-investment is available to employers if their payroll is less than the apprenticeship threshold and businesses that do not qualify for the levy will not be required to pay the full cost of the apprenticeship programme. 

The government will pay 95% of the cost of the chosen apprenticeship training, but your funding may be limited to the funding band of the selected programme. If your training costs exceed the amounts outlined in the bands, then your organisation will need to cover the costs of the training.

Summary 

This guide has covered everything employers need to know about the apprenticeship levy and how they can use it to upskill their workforce. The levy acts as a fund that employers can use to pay for apprenticeships and qualifications, which aims to increase the quality and quantity of apprenticeships across the UK.

Organisations that pay over £3 million in wages are automatically enrolled into the apprenticeship levy scheme and the funds can be managed via an online account. Employers that are below the threshold for the apprenticeship levy can still receive funding for apprenticeship training from the government or receive transfers of levy funding. At Virtual College, we understand the value of delivering training and qualifications and can provide you with the most up-to-date certifications and training courses. 

If you want to elevate your business with apprenticeship training and e-learning courses, contact Virtual College now to see how our extensive catalogue of training solutions can benefit you.