17 Nov 2016

From April 2017, the funding of apprenticeships will be changing with the introduction of the new apprenticeship levy. The levy is being introduced as part of the Government’s initiative to fund three million new apprenticeships by 2020.

The levy has been criticised by employers’ groups as a tax on employers, on the basis that less than 2% of employers will pay the levy. Nevertheless, the Government intends to press ahead with the introduction of the levy next Spring. The practicalities of paying the levy are subject to consultation and further guidance is expected to be published in December 2016.

For employers and sectors who do not typically use apprenticeships, the levy will represent an additional cost. It will be key for those organisations to consider how best to use their levy funds (or indeed whether to use them at all, given the employment costs associated with taking on additional staff). In practice, employers who have existing apprenticeship programmes or who train a lot of apprentices should get their money back, and in sectors where apprenticeships are typically used, the levy may represent more of an administrative exercise in preparing for the new system.

What do employers need to know?

  • The new levy will apply to all employers across the UK with a pay bill of over £3 million per year. Those employers will begin paying the levy in May 2017
  • The levy will be charged on employers’ gross annual pay bills at a rate of 0.5% and employers will have a £15,000 annual allowance to offset against the levy. The total amount employers will need to pay is therefore 0.5% of their gross pay bill, minus £15,000. In the case of connected companies, only one £15,000 allowance is available
  • The levy will be payable monthly through PAYE and will be based on Real Time Information, meaning that employers whose pay bills vary month on month may only pay the levy in some months of the year. This also means that some employers with occasional higher monthly wage bills may have to pay the levy in those months, even if their annual pay bill falls below £3 million. At present, there are no arrangements in place to recoup those sums, other than using them for apprenticeship training
  • Employers will be prohibited from recovering the levy from employees, whether through a deduction from wages or any other means
  • For English employers, the levy will be paid into an account with the digital apprenticeship service and the Government will add a 10% top up the levy funds invested. Employers will then be able to access the levy sums to fund the apprenticeship training they want, provided that training is provided by a Government approved provider. Separate arrangements will be put in place for Scotland, Wales and Northern Ireland
  • Unused funds will expire 2 years after they enter an employer’s account; such funds will be redistributed by the Government to fund apprenticeships for other employers
  • Finally, employers who do not pay the levy will still be able to access the new funding system from May 2017, with 90% of their training costs being funded by the Government.