Apprenticeship Levy and Apprenticeship Funding

From 6 April 2017 a new charge will apply to some employers – the Apprenticeship Levy. Although many employers will not pay the Levy, there will be significant changes to taxpayer funding of apprenticeships for all employers.

The changes are being introduced as the government wants to encourage the creation of three million apprenticeships in England by 2020.

Who will pay the levy? 

In principle, employers will only pay the Levy if their annual ‘pay bill’ is over £3 million. A pay bill means the total earnings upon which Class 1 employer National Insurance contributions are calculated. The Levy won’t be charged therefore on other payments to employees such as benefits in kind. 

The Levy is 0.5% of the pay bill but there is an annual allowance of £15,000.

Calculations of any Levy liability will need to be reported within 14 days of the end of each tax month. The liability will be due by the 22^nd following the tax month if paying electronically. The Levy is therefore reported and paid in a similar manner as PAYE. 

However there will only be a need to report on the Levy by an employer if the employer: 

• had a pay bill of £3 million in the previous tax year, or
• considers that the pay bill will be over £3 million in the current tax year.

So most employers will not only have no liability to pay the Levy but there will also be no reporting requirements. 

As might be expected, there are rules about connected employers, for example, companies in the same group. Connected employers cannot have more than £15,000 allowance between them. The allowance can be split between connected employers in any ratio they choose.

Funding for employers who have paid the Levy 

Key points are: 

• An employer will have a digital account to fund the cost of training apprentices. The level of funding will be the monthly Levy paid to HMRC multiplied by the proportion of the employer’s pay bill paid to their workforce living in England. There will be a 10% government top up of this amount.
• Employers have 24 months in which to use the funds in the digital account.
• The funds can pay for apprenticeship training and assessment with an approved provider.
• All existing apprenticeship frameworks and standards have been placed in one of 15 funding bands, with the upper limit of those bands ranging from £1,500 to £27,000. 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.
• Employers can negotiate the best price for the training they require from a training provider, which can be below the maximum set by the funding band. If the employer wants to spend more than the upper limit of the funding band, they can do so but at their own cost.
• An employer who wishes to invest more in training than they have available in their digital accounts will benefit from further government funding (see ‘co-investment’ below).

Funding for employers who are not required to pay the Levy and co-investment 

Key points are: 

• Employers who are not required to pay the Levy or who wish to invest more in training than they have available in their digital accounts will get government funding through ‘co-investment’.
• Co-investment means that government funding will meet 90% of the training costs and the employer 10%. The government funding only applies to amounts up to the funding band limit for any particular apprenticeship.

Special funding for younger apprentices 

There are additional measures focused on apprentices aged 16-18 on an apprenticeship framework or standard and apprentices aged 19-24 who have previously been in care or have a Local Authority Education, Health and Care plan. 

• Where employers take on these types of apprentices, employers will receive £1,000 for each apprentice in two instalments
• Employers with fewer than 50 people working for them will have the benefit of the £1,000 and will be excepted from the need to pay 10% of the training costs of the qualifying apprenticeships. So the government will pay all the training costs up to the funding band maximum.
• Training providers will also receive additional funding for these apprentices.

Where to get further information 

Further information on the Levy and apprenticeship funding can be found at goo.gl/MTO2xO 

Some government information on taking on an apprentice can be found at www.gov.uk/take-on-an-apprentice 

Please contact us if you require any further information or advice.