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The Apprenticeship Levy

What is the Apprenticeship Levy?

In November 2015 the then Chancellor of the Exchequer George Osbourne announced plans to bring in an apprenticeship levy in the Autumn Spending Review. Guidance is now in place for the 2017-18 tax year, and this guide sets out some key points and useful links for more information.

The government have set the levy at 0.5% of an employer’s annual pay bill, to be collected through the PAYE tax system.

In 2015 the government committed to 3 million apprenticeship starts in England for the 5 years from 2015 to 2020. The intention of the levy is to stimulate apprentice intake, by enabling employers to recoup levy they have paid as long as it is spent on government approved apprenticeship standards or apprenticeship frameworks in England. In regard to the devolved nations and how this effects them and the amount of levy claimable back by an employer (if any), this is covered below.

When does the Apprenticeship Levy come into effect?

The Government are introducing the apprenticeship levy on 6 April 2017, and the new system of apprenticeship funding will operate from 1 May 2017, whether an employer pays levy or not.

What types of business does the levy apply to?

The levy applies to all employers in the United Kingdom across all sectors, whether businesses or trade unions, charities and public sector bodies, but will only be triggered for those with an annual pay bill of more than £3 million.

In regard to groups of companies, they will be considered as one entity in respect of the levy, and be subject to levy if the annual pay bill of the group exceeds £3 million.

For companies with a payroll of less than £3 million, apprenticeship funding in England will remain direct via the Skills Funding Agency.

What counts as a gross annual pay bill?

The gross annual pay bill is calculated by taking into account all people who are subject to National Insurance contributions on a PAYE payroll. The definition of the gross amount in earnings levels includes any remuneration from employment, inclusive of pay, bonuses, commissions, allowances and pension contributions; in effect all that National Insurance is paid upon.

How is the levy payment calculated?

The levy is set at 0.5% of an employer’s gross annual pay bill over £3 million, but employers will also have a £15,000 levy free allowance on that sum.

All employers have an offset levy free allowance of £15,000 (equal to 0.5% of £3 million). Employers with a monthly pay bill under £250,000 (equivalent to a £3 million annual pay bill) will not pay the apprenticeship levy at all.

The £15,000 is divided into 12 monthly levy free allowances of £1,250:

  • If 0.5% of a month’s pay bill is higher than the £1,250 levy free allowance, the employer will pay the apprenticeship levy.
  • If 0.5% of the monthly pay bill is under £1,250, the unused balance of the levy free allowance will be carried to the next month.

This means that some companies might pay the levy only in months where payroll is higher than usual.

However, if previous month's pay bills were below the £1,250 monthly levy free allowance, the unused balance would be carried forward and deducted from payments due in the higher payroll month; ensuring employers get full benefit from their £15,000 levy free allowance. (Source: CITB)

Apprenticeship levy example

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 per cent x £5,000,000 = £25,000

Allowance: £25,000-£15,000 = £10,000 annual levy payment

What will the Levy allowance be?
The actual levy calculation for funding apprenticeship training and assessment is subject to the proportion of employees whom live in England and those that live in the devolved nations, based upon their home postcode. For the levy incurred on the payroll of those who reside in the devolved nations, the UK government will allocate funding to each relevant devolved government based upon population share. 

(If an apprentice is recruited who resides in a devolved nation, and spends 50 per cent or more of their working time in England, and is undertaking their training on an Apprenticeship Framework or Standard regulated in England, then training and assessment for that apprentice should be eligible for funding from the employer’s Digital Account for England - check with the training provider for assistance).

The figures regarding a companies levy contribution can change on a monthly basis, depending on the number of staff and where they reside. Therefore the Skills Funding Agency has set up an online calculator for companies and organisations to help calculate their available funding. Follow the link for the calculator here.

An important point to remember is the sum claimed back will include a 10% top-up in England by Government in addition to levy claimed back (i.e. co-investment by Government). See below under the heading: “Does the government provide any additional funding to Levy payers?” for more information.

How will apprenticeship funding operate in Scotland, Wales and Northern Ireland?
The deduction from the levy allowance described above will be proportionality allocated to each relevant devolved nation Government (Scotland, Wales, Northern Ireland), based upon population share. Apprenticeships and skills development budgets are a devolved issue. Effectively there is no change in the way apprenticeships funding is allocated at the devolved nation level, between devolved government, training providers and employers.

See here for more information: "UK government agrees apprenticeship levy funding deal with devolved administrations".

The employer would arrange apprentice recruitment and training in the normal way through their Training Provider as per the rules in devolved nation.

Available Apprenticeship Frameworks in the devolved can be viewed online at the following links:

What about the Isle of Man, Gibraltar and the Channel Islands, will employees living there have to be taken into account when calculating the overall payroll?

No, it is the UK only. The Channel Islands and Isle of Man are 'Crown dependencies' of the UK – in effect jurisdictions separate to the UK but belonging to the British Crown, and Gibraltar is a British overseas territory.

How does the levy allowance that an employer is entitled to operate?

The levy allowance operates on a monthly basis and will accumulate throughout the year.  Any unused levy allowance will be carried from one month to the next.

The total levy amount is collected monthly by HMRC, and the funding is then made available to employers via a digital account, through which they will be able to pay for training of apprentices. If an employer does not spend their entire levy amount on apprenticeships, then the unspent portion will be made available to other employers to spend on apprenticeships.

Funds will expire 24 months after they enter the apprenticeship digital account unless they are spent on an eligible apprenticeship.

Apprenticeship levy payments to HMRC will be an allowable deduction for Corporation Tax purposes.

Groups of companies under common ownership can decide for themselves what proportion of the levy and levy free allowance each company within a group can take for their apprenticeship funding levy allowance for apprentice training in England.

Does the government provide any additional funding to Levy payers?

Yes, at February 2017 the system proposed is as follows:

  • 10% top-up – The Government will apply a 10% top-up to a levy payers’ digital account for spending on apprenticeship training in England. The top-up will be applied on a monthly basis along with the funds already entering the digital account. What this means is that for every £1 of the levy payers contribution that enters the digital account for spending on approved apprenticeship training in England, they will actually get £1.10 paid in (£1 + 10p). Again, funds will expire 24 months after they enter the apprenticeship digital account unless they are spent on an apprenticeship. Top-up payments do not come out of an employer’s levy allowance, and are in addition to it.

  • Recruiting 16-18 year old apprentices grant incentive – All employers (including those paying levy) who take on a 16-18 year old will receive an additional payment of £1,000 payable in two equal instalments at 3 and 12 months initially via the training provider but in time directly from government. This applies regardless of whether it is a framework or standard. 16-18 incentive grant payments do not come out of an employer’s levy allowance, and are in addition to it.

  • Extra Support

Apprentices aged 19 to 24 who have previously been in care or who have a Local Authority Education, Health and Care plan may need extra support and to assist in this, employers who train an apprentice who is aged 19 to 24 and has previously been in care or who has a Local Authority Education, Health and Care plan, will receive £1,000 to help with these additional costs in the same way as the payment for 16 to 18 year olds.

Furthermore, there is additional funding for smaller employers to take on those who need more support. Employers with fewer than 50 people working for them will be able to train at no cost those aged 19 to 24 and have previously been in care or who have a Local Authority Education, Health and Care plan. These employers will not be required to contribute the 10% co-investment; instead the government will pay 100% of the training costs for these individuals.

For recruiting 16-18 year olds, and for recruiting 19-24 year old care leavers / those on Education, Health and Care (EHC) plan:

- £1,000 to the employer and £1,000 to the Training Provider Plus

- £600 if Apprentice lives in 10-20% most deprived areas

- £300 if Apprentice lives in 20-27% most deprived areas

- £471 for extra Maths/English training

- Up to £150 per month for learning difficulties (dyslexia) or disabilities

- Employers with fewer than 50 people working for them – government will pay 100% of the training costs those aged 19 to 24 and have previously been in care or who have a Local Authority Education, Health and Care plan.

These incentive payments do not come out of an employer’s levy allowance, and are a transaction directly between Government and the employer and provider.

More information, including details on extra support for adult apprentices on STEM (Science, Technology, Engineering and Mathematics) frameworks, is available to download here: Apprenticeship funding in England from May 2017


What can an employer spend the Levy on?

Strict rules apply. Funds in the digital account can only be used towards the costs of apprenticeship training and spent with an approved registered apprenticeship training provider.

Funds cannot be used to pay for other costs associated with apprentices or training, like wages, occupational licencing, travel and subsistence costs, managerial costs, or the costs of establishing an in-house or industry apprenticeship programme.

However, the government is currently discussing with industry groups ways of enabling employers to be able to transfer some of the funds in their digital account to other employers in their supply chains or sector, and guidance is anticipated for 2018 on how this can be best achieved.

What happens if an employer does not have enough funds in the account to pay for all the apprenticeship training that they require?

Although it is currently anticipated that many larger employers will at first struggle in spending all the levy contributions they can theoretically claim back, some employers paying the levy may find that the funds in their digital account aren’t enough to cover the full cost of training the number of apprentices they want to employ. Therefore government have confirmed that they are happy to pay 90% towards the extra cost of such additional apprentice training if required by an employer.

How are the training and assessment costs calculated?

Every apprenticeship standard and framework is placed in a funding band, which sets the maximum amount of funding that can be used towards training costs over the duration of an approved apprenticeship. The same funding bands will apply to all employers paying for apprenticeships:

Intermediate Level Apprenticeships (Level 2)

Advanced Level Apprenticeships (Level 3)

Higher Apprenticeships (Levels 4 and above)

Degree Apprenticeships (Levels 6 and 7)

Funding bands are set after recommendations from industry, taking into account the level and type of apprenticeship, occupation, off-the-job training, assessment and duration required. For example, a very basic Intermediate apprenticeship framework in a basic occupation could last just over 12 months at Level 2, whilst an Advanced Apprenticeship at Level 3 in science, technical, engineering or construction related activities would typically take 36 or 48 months, dependent upon the programme and occupation. For existing Apprenticeship Frameworks in England (existing and available for delivery), and Apprenticeships Standards (those that are available for delivery and those in development), see the following links:

The above can be purchased though the digital account for training in England. 15 new funding bands have been introduced covering both the “Apprenticeship Frameworks” and “Apprenticeship Standards” (i.e. QCF apprenticeship and or apprenticeship standards developed by Trailblazer groups). There is no lower limit to the bands.

The funding bands at March 2017 stood at:

Band

Upper Limit

Band

Upper Limit

Band

Upper Limit

1

£1,500

6

£4,000

11

£15,000

2

£2,000

7

£5,000

12

£18,000

3

£2,500

8

£6,000

13

£21,000

4

£3,000

9

£9,000

14

£24,000

5

£3,500

10

£12,000

15

£27,000

More details and the most up to date banding can be found here.

The exact amount of funding allocated to specific standards or frameworks, as per occupational route being studied and trained for can be viewed online here:

What about the funding of apprentices taken on before the 1 May 2017 Levy date?

The levy will not affect the way employers fund training for apprentices who started an apprenticeship programme before 1st May 2017. The funding for training of those apprentices for the full duration of their apprenticeships will remain under the Skills Funding Agency terms and conditions that were in place at the time the apprenticeship started.

What is the apprenticeship funding system in England for employers who do not have to pay the Levy?

For employers do not pay the levy, they won’t (currently – see below) have use of a digital apprenticeship service account to pay for apprenticeship training and assessment. 90% of costs will be met by the Government skills budget, and with incentives like the 16-18 year old grants, small to medium sized employers can easily be cash positive in apprentice recruitment. As traditionally the backbone of apprenticeship intake has been by SMEs in craft and engineering occupations, this is to be welcomed for those sectors. 

However, it is also planned that in 2018 they will be able to make use of a digital account to arrange training from providers directly. From 1st May 2017, they can choose the apprenticeship framework or standard they require, and the training provider to deliver it. A price is then agreed with that provider within the funding bands. As described, the government will make a contribution of 90% to the cost of this training, plus any incentives.

Developing Apprenticeship Standards?

For details on “Trailblazer” groups and the development of Apprenticeship Standards, guidance is available here.

(Sources: HM Government, CITB, JTL)

Useful Levy specific guidance:

Apprenticeship funding: how it will work.

Apprenticeship funding in England from May 2017.

Apprenticeship Funding Bands In England:

Estimate my apprenticeship funding

Registration and Management of apprenticeship funds online

If your employer pays the levy and wants to employ apprentices in England, they will need to create an account on the gov.uk Manage Apprenticeships page and follow the steps outlined on the Skills Funding Agency’s online platform.