The Apprenticeship Levy is a government tax initiative that was introduced in the United Kingdom in April 2017.
It requires all employers with an annual pay bill of more than £3 million to invest 0.5% of their pay bill in apprenticeship training.
The funds collected through the levy are used to finance apprenticeship training and assessments for the employer's own workforce, or for the workforce of other employers.
The goal of the levy is to increase the number of apprenticeships and improve their quality.
Does the Apprentice Levy apply to all businesses?
The Apprenticeship Levy applies to all employers operating in the United Kingdom with an annual pay bill of more than £3 million. The annual pay bill is calculated as the total amount of earnings subject to Class 1 secondary National Insurance contributions, which includes wages, bonuses, and commission payments to employees.
If a business doesn’t pay into the levy, can they still have access to it?
Employers with an annual pay bill of less than £3 million do not have to pay the apprenticeship levy, but they can still access government funding to support the cost of apprenticeship training through the co-funding system.
Under this system, the government will pay for 90% of the training costs for apprentices aged 16 to 18, and for those aged 19 to 24 who have previously been in care or have a disability. For other apprentices aged 19 to 24, the government will pay for 95% of the training costs. Employers will be required to pay the remaining 5% or 10% of the training costs, as well as the full cost of the apprentices' wages.
Employers with a pay bill of less than £3 million can also access the funds from the Apprenticeship Levy paid by other employers, by receiving the transferred funds from their digital account, this is known as "levy transfer". It is intended to give employers the flexibility to support smaller employers or other organizations with their apprenticeship training.
What are the benefits to a business using the Apprentice Levy Scheme?
Businesses should consider using the scheme because it provides a way for them to invest in the training and development of their workforce.
By participating in the scheme, employers can access government funding to cover the cost of apprenticeship training and assessments for their employees. This can help to improve the skills and productivity of the workforce, which can in turn lead to increased competitiveness and profitability for the business. Additionally, by taking on apprentices, businesses can help to address skills shortages in their industry and contribute to the development of a skilled workforce for the future.
How can businesses access the Apprentice Levy funding?
To access the Scheme, a business must first register with the government's digital apprenticeship service. Once registered, the business can use their digital apprenticeship service account to:
- pay the apprenticeship levy
- manage their apprenticeship funds
- find and select apprenticeship training providers
- pay training providers
- report on the progress of their apprentices.
When accessing the funds, the business can select an apprenticeship training provider that is approved by the government, agree on the terms of the apprenticeship, and then use the digital apprenticeship service to pay the training provider.
The provider will then deliver the training and the business is responsible for ensuring that the apprenticeship standards are met and the training is delivered as per agreed terms.
Paying for the levy?
Employers with an annual pay bill of more than £3 million are required to pay the apprenticeship levy. The levy is calculated as 0.5% of the employer's total pay bill, and it is paid to the government through the Pay As You Earn (PAYE) system. The funds collected through the levy are then placed in a digital account that the employer can access to pay for apprenticeship training and assessments.
Employers must use their funds in their digital accounts within 24 months, or they will expire.
Where do payments of the levy go?
Payments of the levy go towards the funding of apprenticeship training and assessments for the employer's own workforce, or for the workforce of other employers.
The funds collected through the levy are placed in a digital account that the employer can access to pay for apprenticeship training and assessments.
The funds in the digital account are managed by the employer and can be used to pay for the costs of apprenticeship training and assessments, including the cost of the training itself, as well as any associated costs such as exam fees and materials.
The employer can also use the funds to pay for the salaries of apprentices while they are training, but only if they are contributing to the training costs.
The government also provides a 10% top-up to the funds in the digital account for employers in England, which means that for every £1 that an employer puts into their digital account, the government will add an extra 10p.
How do the payments work?
The Apprenticeship Levy is paid to the government through the Pay As You Earn (PAYE) system, along with other taxes such as income tax and National Insurance contributions. Employers with an annual pay bill of more than £3 million are required to pay the levy, which is calculated as 0.5% of the employer's total pay bill.
Employers will receive a statement from HM Revenue and Customs (HMRC) every month that shows how much Apprenticeship Levy they must pay, and the funds will be transferred from their bank account to the HMRC. The statement will also show the funds available in the employer's digital account, which can be used to pay for apprenticeship training and assessments.
Employers can use their digital account to pay for training, manage and monitor apprenticeship, and track their spending.
Employers can also choose to transfer some of their funds to another employer's digital account, this is called "levy transfer" and it is intended to give employers the flexibility to support smaller employers or other organizations with their apprenticeship training.
Getting it right?
To ensure that a business is getting the most out of the Apprenticeship Levy Scheme, it is important to:
- Understand the rules and regulations of the scheme and ensure compliance with them.
- Clearly define the training and development needs of the workforce and align them with the apprenticeship standards available.
- Select high-quality apprenticeship training providers that have a track record of delivering effective training and meeting the needs of employers.
- Communicate effectively with the apprenticeship training providers and actively manage the apprenticeship training process to ensure that it is meeting the needs of the business.
- Regularly review the progress of apprentices and take necessary actions to address any issues or concerns.
- Use digital apprenticeship service account effectively to manage the apprenticeship funds, and keep track of the progress of the apprenticeship training.
- Plan ahead to ensure that funds are used effectively and in a timely manner as the funds have a 24-month validity period from the time of allocation.
By following these steps and working closely with apprenticeship training providers, businesses can ensure that they are getting the most out of the Apprenticeship Levy Scheme and effectively investing in the skills and development of their workforce.
Please note that the rules and regulations of the scheme are subject to changes, and employers should check with the relevant authorities for the latest information and guidance on how to access the Apprenticeship Levy funds.
At HR:4UK we can support organisations wishing to utilise the government Apprenticeship Levy