The apprenticeship levy requires all employers operating in the UK, with a pay bill over £3 million each year, to make an investment in apprenticeships.
The Apprenticeship Levy is a monthly, mandatory financial contribution made by employers to the Treasury. This levy payment is then be placed in a designated account (Direct Apprenticeship Service) which can then be accessed by that employer to fund apprenticeships. If that employer chooses not to spend the levy on apprenticeships, their levy contribution will not be returned to them.
What was the impact of introducing the levy?
The Apprenticeship Levy was introduced on 6th April 2017. There was a significant dip in new apprenticeship starts after the introduction of the levy. This followed a sharp rise in new apprenticeship starts immediately before the introduction of the levy.
The number of new apprenticeship starts began to recover in the months following the introduction.
Apprenticeship Levy FAQs
We need greater investment in workforce skills and training. Relying on employers to voluntarily provide adequate training opportunities has failed. This is highlighted by the Department of Education (DfE). DfE has calculated that there has been a steep decline in off-the job training during this period, with the number of employees attending training courses away from the workplace declining from 141,000 in 1995 to 18,000 in 2014. This analysis is corroborated by a recent authoritative academic study estimating that the total volume of training provided by UK employers fell by around a half (-48%) between 1997 and 2012.
The TUC believes that mandatory contributions will address this decline in skills investment.
Yes, the TUC and unions have long campaigned for a training levy.
Trade union support for the levy or other apprenticeship reforms is not unconditional. We believe that there should be an emphasis on quality rather than quantity.
For further information about the high quality standards, which should underpin apprenticeships please view the TUC Apprenticeship Toolkit at: https://www.unionlearn.org.uk/publications/apprenticeships-toolkit
No, employers cannot opt out from paying the levy.
Employers that have a pay bill greater than £3m will have to pay the levy.
The levy will apply to all large organisations with an annual payroll of over £3million per annum, regardless of whether they already employ apprentices or not.
Any employer with a pay bill size of £3m or more will have to pay the levy.
Technically all employers have to pay the levy, but the government has introduced a £15,000 tax allowance, which can be used to offset any levy liability. This means that, once the allowance is taken into account, only employers with a pay bill size of £3m or more will have to make a levy payment.
|Apprenticeship levy examples:|
|Employer of 250 employees, each with a gross salary of £20,000 would pay:|
|Pay bill: 250 x £20,000 = £5,000,000|
|Levy sum: 0.5% x £5,000,000 = £25,000|
|Application of Allowance: £25,000 – £15,000 = £10,000|
|Levy payment due = £10,000 annual levy payment|
|Employer of 100 employees, each with a gross salary of £20,000|
|Paybill: 100 x £20,000 = £2,000,000|
|Gross Levy Due: 0.5% x £2,000,000 = £10,000|
|Application of Allowance: £10,000 – £15,000 = £0|
|Net Levy Due: £0.|
Whilst trade unions have welcomed the introduction of the Apprenticeship Levy, we also recognise that it will throw up some additional, potential, challenges.
- Unions and employers have suggested that there may be a detrimental impact on wider workforce training, as employers will have to make mandatory levy payments. Employers have suggested that
- This is a legitimate point. However, many employers may not be offering any workforce training. The TUC believes that the apprenticeship levy will incentivise employers to take on apprentices.Therefore this should lead to an increase in employer investment in training. It is also worth viewing the introduction of the levy in the context of wider tax cuts for employers. For example, the corporation tax rate has been cut from 28% to 18%. Furthermore, employers’ national insurance will be eliminated for apprentices under the age of 25 from April 2016.
- Employers with a pay bill of £3m or over will have to pay the levy. The pay bill size is based on the earnings of “employees”. Therefore the earnings of workers on casual contracts, such as agency workers or zero hours contracts will not count towards an employer’s pay bill. The TUC is concerned that employers may seek to restructure their workforce to avoid levy payments. For example, employers may seek to shift employees on permanent contracts into more flexible forms of employment.
- Public sector unions have expressed concerns that already constrained public sector budgets could decrease further as a result of levy payments. For example, it has been estimated that the NHS will have to contribute £190m per year in levy contributions. To recoup this they would have to take on around 42,000 apprentices.At the moment they recruit around 19,800 apprentices. Therefore, the NHS is anticipating not being able to recoup a significant amount of levy funding.
Access to apprenticeships for those with learning disabilities
In May 2016 a taskforce was commissioned by the Minister for Disabled People, Justin Tomlinson MP, and the Minister for Skills, Nick Boles MP, to explore access to apprenticeships for those with learning disabilities.
One of the key recommendations from this taskforce was that a defined pilot should be conducted exploring how the apprenticeship levy might be tailored to incentivise employers to recruit apprentices with learning disabilities. It was suggested that the pilot should include private, public and voluntary sector employers and look to test out how such an exemption might work within the levy.
16 to 18 year olds
There are extra financial incentives for employers who recruit 16 to 18 year old apprentices. An employer will receive an additional payment of £1000 when they recruit an apprentice aged 16-18. The provider will also receive an additional payment of £1000 for every apprentice aged 16-18 that they support.
19-24 year old care leavers and those who have an Education, Health and Care Plan
Employers receive an additional payment of £1000 when they take on an apprentice care leaver who is aged 19-24 and those apprentices who have an Education Health and Care Plan. The provider will also receive an additional £1000 for every apprentice care leaver aged 19-24 and those apprentices who have an Education and Health Care Plan that they support.
The levy will apply to employers across the UK. However, Apprenticeships are a devolved policy, which means that authorities in each of the UK nations manage their own apprenticeship programmes, including how funding is spent on apprenticeship training.
Levy payments via the Digital Apprenticeship service will only be able to be spent on apprenticeship training in England. The DAS will support the English apprenticeship system. Scotland, Wales and Northern Ireland have their own arrangements for supporting employers to access apprenticeships.
To calculate how much funds will be available to an employer to spend through the English system, the government plans to use data that it already holds under the PAYE system about the home addresses of employees. The government will use this data to work out what proportion of your pay bill is paid to employees living in England and levy funds distributed to the DAS account will be adjusted accordingly.
If a levy paying employer wants to invest more in apprenticeship training than they hold in their digital account and at any point in time has insufficient funding available in their digital account to meet the full costs of training (so up to the funding cap), the government will cover 90% of the costs of training and assessment for that apprentice. The levy paying employer would have to cover the remaining 10%.
If an employer chooses to exceed the funding cap for an apprenticeship, co-investment cannot be used to pay for this.
An example of co-investment:
- Employer chooses apprenticeship in band 9 with a maximum price of £9,000
- Employer negotiates a price of £8,500 with their provider
- Government co-invests 90% = £7650
- Employer co-invests remaining 10%= £850
- Employer and provider agree to spread this over 10 instalments of £85
Unionlearn and the TUC have developed a bargaining toolkit which can be found at: https://www.unionlearn.org.uk/publications/apprenticeships-toolkit