What is the Levy?
Spring 2017 saw a major reform to the Apprenticeship System, with the government introducing the Apprenticeship Levy. The Levy is paid by employers in England with a payroll of more than £3 million, charged at a rate of 0.5% of their annual wage bill. In return, companies paying the Levy receive a £15,000 allowance, divided monthly throughout the year, which can be used to fund the training and assessment of either their current workforce or hired-in apprentices.
Why was it introduced?
The Levy was introduced in April 2017, to provide a solution to the skills deficit currently impacting the UK. It aims to encourage investment in on-the-job-training and is expected to improve the quality and quantity of all apprenticeships delivered, improving business productivity levels.
The government has set a target of three million apprenticeships to be undertaken by 2020.
Who is affected?
The Levy impacts all businesses in the UK.
Employers with a pay bill over £3 million must contribute 0.5% of their pay bill towards the Levy.
Your payroll is any total employee earnings which are liable to Class 1 secondary NICS. These include wages, bonuses, commissions and pension contributions.
Further information can be found here: Class 1A National Insurance contributions.
An example of employers required to pay the Levy:
How does the Levy work?
Employers paying the Levy are provided with an £15,000 allowance, divided monthly throughout the year. However, you only need to pay if your liability is less than £1,250 per month and any unused money will be allocated towards the next month.
For instance: If in Month A your company only used £1,000 of your Levy allocation money, you will not pay the Levy for that month and in Month B your allowance would increase to £1,500.
If you are an employer paying the Levy, your business should be paying to the HMRC. This is done monthly, through the PAYE process alongside tax and NICs.
How are groups of connected companies affected?
If your company is a part of a group of connected companies, your £15,000 Levy allowance is shared between all businesses. Allocation of the Levy money needs to be notified to the HMRC before the start of the tax year and remains permanent for the rest of that tax year.
SMEs with a wage bill under £3 million don’t need to pay the Levy. However, if you are an SME taking on an apprentice or putting an existing member of staff onto an apprenticeship programme, you will need to contribute 10% of their training costs and the remaining 90% will be paid by the government.
If you have under 50 employees and are considering hiring a 16-18 year old apprentice, the government will contribute the entire cost of training to your business.
How is the Levy paid?
The government has set up a Digital Accounts System for Levy payments. Any company paying the Levy can use the Digital Account System, after they have registered. Provided as an E-voucher system, this service allows your company to access and pay for training and assessment for apprentices. The service also allows you to search for training providers, like Skills Team, who can help you to upskill your current staff or hire apprentices.
All companies in the UK will need to use their E-vouchers within 24 months or they will otherwise expire.
Any apprentices that were taken on before April 2017 will be funded by the old apprenticeship model. They will also not have access to the E-voucher system to pay for their training/assessment.
What can the Levy funds be used for?
Levy funds can only be used for the training and assessment costs of apprentices. The government funding will not pay for the following:
- Apprentice travel and subsistence costs
- The costs of setting up an apprenticeship programme
- Work placement programmes
- Managerial costs
- Apprentice wages
Who is eligible for an apprenticeship?
The introduction of the Levy has opened up apprenticeships to more eligible candidates, by loosening restrictions on the age and prior qualifications of apprentices.
Existing employees or new hires are eligible for an apprenticeship, providing:
- They have the right to work in the UK and have access to public funds; and,
- They are qualified at a lower level than the apprenticeship, or
- They enroll on an apprenticeship which is in a different field than any previously attained qualifications.
At Skills Team, we can help your business fully utilise the Levy, through our bespoke Levy consultancy service.
If you have any concerns about the Levy or are interested in developing your workforce, please get in touch with our consultants.
Skills Team's Levy Consultancy Service
At Skills Team, our consultancy service will help you to navigate the Levy with ease and optimise your funding spend, giving you full confidence in your future training and apprenticeship strategy.Learn more