The Apprenticeship Levy came into effect on 6 April 2017. The purpose of the levy is to encourage employers to invest in Apprenticeship Programmes and to raise additional funds to improve the quality and quantity of apprenticeships. The levy is set to raise £3 billion with a view to funding three million new apprenticeships by 2020. All businesses – whether they pay the tax or not – can access the Apprenticeship Levy.
Who needs to pay the levy (and when)?
If you’re an employer with a pay bill over £3 million each year you will need to pay the levy (this applies to around 2% of employers). The threshold means only larger organisations need to pay.
The levy amount is 0.5% of a company’s payroll, and every employer who pays is also eligible for an allowance of £15,000 to offset against the amount of money they owe. HM Revenue and Customs (HMRC) collects the levy on a monthly basis through Pay as You Earn (PAYE).
What happens with the funds paid into the levy?
Your levy payment is then paid into an online Digital Apprenticeship Service (DAS) account (similar to online banking), which receives a 10% ‘top up’ from the government. (So for every £1 paid in, a levy paying business can access an additional 10p to spend on apprenticeships.)
Like any other tax, the Apprenticeship Levy funds you pay become public funds the moment they leave your bank, and because of this, are subject to complex rules about how they can be used.
(The levy is part of the devolved funding to Scotland, Wales and Northern Ireland and is calculated on UK wide payroll costs. The proportion of the levy that can be spent in England is based on the size of the English payroll for any particular business. If a levy-paying company operates in England only, then it is able to spend 100% of its levy contribution on the training and assessment of apprentices, plus the additional 10% added by the government.)
"The levy is set to raise £3 billion with a view to funding three million new apprenticeships by 2020. All businesses – whether they pay the tax or not – can access the Apprenticeship Levy."
Do marginal levy payers get their funds back?
It depends. The levy is payable by employers with an annual payroll of £3m or more, which equates to a monthly payroll of £250,000. If for a single month, the payroll exceeds £250,000, then the levy should be paid to HMRC for that month. If however, at the end of the tax year, the payroll is less than £3m, then the employer will be able to claim back the monthly payment made earlier in the year.
How can funds be accessed?
All levy-paying employers can access funding via a Digital Voucher Scheme. Funds (including ‘top ups’) that businesses accrue in their Apprenticeship Service account expire after 24 months unless spent on apprenticeship training.
If you are a levy-paying employer, you can now create an account on the Digital Apprenticeship Service to:
- Receive levy funds for you to spend on apprenticeships
- Manage your apprentices
- Pay your Training Provider
- Stop or pause payments to your Training Provider
- Transfer your levy funds to another employer
Can employers share funds with other employers?
If you are in a group of companies paying the levy together, your group can set up a single shared apprenticeship account and pool your funds. Since April 2018, if you are a levy-paying employer, you can transfer up to 10% of the annual value of funds to other employers through the Apprenticeship Service. Transfers can be made to any employer, including smaller employers in the supply chain, and apprenticeship training agencies. Before transferring funds, you will need to agree the individual apprenticeships that will be funded by a transfer with the employer receiving the funds. Employers receiving transferred funds will only be able to use them to pay for training and assessment for Apprenticeship Standards (not frameworks). The transfer counts as state aid, so the maximum amount that an organisation can receive through a transfer of funds is 2 million euros over 3 years.
If you’re a levy-paying business and can see the value of offering an Apprenticeship Programme, this Starter Pack is designed to give you all the essential information you need to consider your options and take the next step on your journey