Apprenticeship Levy

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.

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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.

Yes. Private sector, public sector and third sector organisations will have to pay the levy, where their pay bill exceeds £3 million.
The levy is estimated to raise £3bn per year.
Employers pay the levy at a rate of 0.5% of payroll from the point where their payroll exceeds £3 million.
There is a £15,000 fixed annual allowance for employers to offset against their levy payment.

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.
Employers have a £15,000 tax allowance they can offset against their levy payments which means only those with an annual payroll in excess of £3M have to pay the levy.
There are safeguards in place to ensure that where employers are “connected” (where a company has control of another company or both companies are under the control of the same person or persons) they can only utilise the £15,000 tax allowance once.
For example, if three “connected companies” each had an individual annual payroll of £3M they would not be able to avoid the levy altogether by each one using the £15,000 allowance. In effect they would have to pay the levy on the total combined wage bill above £3M (i.e. £9M - £3M) and would therefore have to pay the levy on £6M.
Earnings include any remuneration or profit coming from employment, such as wages, bonuses, commissions, and pension contributions that an employer will pay National Insurance Contributions on. The government will not charge the levy on other payments such as benefits in kind.
They calculate, report and pay their levy to HMRC, through the Pay as You Earn (PAYE) process alongside tax and National Insurance Contributions (NICs).
Employers can recoup their levy contribution if they take on apprentices. The levy is collected by HMRC.
Individual employers’ funding for apprenticeship training in England can then be made available to them via a Digital Apprenticeship Service (DAS) account. Employers can use this to pay for the training and assessment of apprentices.
The service will also support employers to identify a training provider, choose an apprenticeship training course and find a candidate. Levy funds appear in the employer’s digital account monthly, a few working days after the pay bill and levy contribution has been confirmed to HRMC for the previous month.
Technically, yes. The government tops up an employer’s contribution to their DAS account by 10%. For example, an employer pays a £1000 levy contribution via their normal monthly PAYE process.
This money is then transferred to their Digital Apprenticeship Service (“DAS”) account, for them to spend on apprenticeship training and end point assessment. The government will top up this amount by 10%. Therefore the employer will have £1100 to spend on apprenticeship training and end point assessment.
The levy can be used to fund apprentices aged 16 and over.
No, funding can be spent on apprentices who may be new entrants or existing employees.
Yes, employers lose the money in their DAS accounts if they don’t spend the money on apprenticeship training and end point assessment within 18 months.
DAS funds will expire after 18 months.

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.
Many levy-paying employers investigate how they can become training providers themselves, meaning they can effectively fund themselves, via their DAS accounts, to provide apprenticeship training and assessment. In principle there is nothing wrong with this approach, providing employer providers meet a rigorous set of quality assurance tests that we hope the Skills Funding Agency will be putting in place later this year under the new “Register of Approved Providers”. Employers need to understand the obligations that apply to publicly funded training organisations and ensure they can comply.
Yes. From 2018 a levy paying employer can transfer up to 10% of the annual value of funds entering their digital account to other employers also on the digital system.
Some industries already operate levy systems, or other collective training arrangements. Employers who use existing mandatory levy systems (construction and engineering construction) will also have to contribute to the national Apprenticeship Levy.
The government will pay the costs of Level 1 and Level 2 English and maths provision for apprentices directly to the provider, up to an amount of £471 for each qualification.

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.

Yes, small employers (those with fewer than 50 employees) will not have to pay any costs towards the training and assessment of apprentices aged 16-18.
Apprenticeships that started before the first levy payment is taken (April 2017) continue to be funded under the current model. Therefore, companies that started apprentices in September 2016 will be funded under the existing funding model for the whole of the apprenticeship. Vouchers cannot therefore be used to fund apprentices that started an apprenticeship before April 2017. Apprentices who were been accepted on to an apprenticeship programme before April 2017 are funded for the full duration of the apprenticeship under the terms and conditions that were in place at the time the apprenticeship started.

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.

Employers can use their funding (up to a cap which will depend upon the standard or framework that is being trained against) to cover the costs of an apprentice’s training, including English and maths, assessment and certification. It is not be possible to use levy funds to cover any costs other than those training and assessment costs listed above. Overheads, supervision costs and apprentices’ wages must not be funded by the levy. Levy-paying employers can only use DAS funding to pay for the costs of apprenticeship training and end point assessment and this must be with an approved training provider and assessment organisation. This funding cannot be used for other costs associated with apprentices or wider training effort, e.g. wages, statutory licences to practise, travel and subsidiary costs, managerial costs, traineeships, work placement programmes or the costs of setting up an apprenticeship programme.
If an employer recruits an apprentice with additional learning needs such as dyslexia, other learning difficulties or disabilities, a payment is made directly to the training provider, of up to £150 per month, to help them with the extra costs of supporting the apprentice’s learning. Additional costs will be available based on evidenced need. Please see the question relating to additional financial incentives.
There are restrictions placed on how an employer uses funds in their digital accounts. There are funding bands which determine how much funding from the DAS an employer can spend on an individual framework. For example, if an employer had £100,000 in their DAS account, they could not choose to spend all this money on one apprenticeship framework. There are specific caps in place for different types of apprenticeship. An employer can choose to spend more than this cap, but they cannot pay the surplus, which is above the funding cap, from their DAS account.
The new apprenticeship funding system has 15 funding bands, with the upper limit of these bands ranging from £1,500 to £27,000. Each apprenticeship falls into a funding band. The upper limit of each funding band caps the maximum amount of digital funds an employer who pays the levy can use towards an individual apprenticeship. The upper limit of the funding bands also cap the maximum price that government will ‘co-invest’ towards, where an employer does not pay the levy or has insufficient digital funds and is eligible for extra support. It is up to employers to negotiate prices with providers, within these funding limits.
In these cases the government pays the majority share of the apprenticeship. They call this “co-investing”.
If an employer has not paid the levy and would like to train an apprentice, the government will cover 90% of the training and assessment costs. Meaning that the employer has to cover the remaining 10% of these costs.

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
Yes, as long as the proposed apprenticeship will allow the apprentice to acquire substantive new skills, and the content of the training is materially different from any prior training or previous apprenticeship, then the employer could fund this apprenticeship.

Unionlearn and the TUC have developed a bargaining toolkit which can be found at: https://www.unionlearn.org.uk/publications/apprenticeships-toolkit