10 Most Common Questions About the Apprenticeships Levy

Starting an apprenticeship program is an ideal way for a business to recruit and foster fresh talent and invest in existing human resources, while also providing additional employment opportunities to burgeoning professionals. With the government officially implemented the Apprenticeships Levy on 6 April 2017, many business leaders still haven’t become familiar with how this new form of apprenticeship funding works. Since the levy only has to be paid by larger companies, it makes sense that many SMEs should take an interest in this relatively new scheme. With that said, here are the 10 most commonly asked questions related to the Apprenticeships Levy.

1. 1. 1. What is the Purpose of the Apprenticeships Levy?

The levy is essentially a tax that has to be paid by larger companies, but the funds are set aside in an account to be used for apprenticeship assessment and training purposes. Companies can use directories like FindCourses.co.uk to select optimal apprenticeship training providers for their apprenticeship programs. The levy payments are stored in a digital account, a portion of which is allocated to an allowance that can be used to fund apprenticeship services.

Thus, the levy is a measure taken to ensure that corporations are investing a bare minimum into apprenticeships for the sake of promoting job growth, staff development, and subsequent economic stimulus. Furthermore, the levy program is expected to help address the growing skills shortage in the UK that is leaving many industries short staffed and overburdened.

1. 2. 2. What Businesses Have to Pay the Levy?

Only companies with the highest payrolls are required to pay the levy. More specifically, a business must have an annual wage bill of more than £3 million to be above the levy threshold, and only about two percent of all UK companies fall into that bracket – the other 98 percent of businesses do not have to pay into the levy. Although smaller companies are not required to pay, they can still benefit from the program in other ways mentioned below.

1. 3. 3. How Can Smaller Businesses Benefit from the Apprenticeship Levy?

While the duty to pay the levy is reserved for companies who meet the payroll threshold, smaller businesses can take advantage of the ‘co-investment’ scheme, which essentially allows the government to provide substantial support to non-levy paying companies. As of May 2017, companies that don’t meet the £3 million payroll threshold will only have to pay 10 percent of their apprenticeship costs, while the government will cover the other 90 percent, up to the maximum funding limit of £27,000.

1. 4. 4. How Much Do Companies Have to Pay into the Levy?

Employers that meet the aforementioned levy threshold must pay an amount equal to 0.5 percent of their payroll, but at least £15,000 of it is allocated to an allowance that the company can use to pay for apprenticeship-related expenses. The 0.5 percent rule is the reason why the threshold is set at £3 million – because 0.5 percent of £3 million is £15,000.

Any amount above £15,000 is considered “levy payable” and is, therefore, not made available within the company’s allowance but instead used to fund the government’s apprenticeship programs for smaller businesses that don’t have to pay the levy.

For example, a company with a total annual payroll expense of £6 million would be required to pay £30,000 into the levy, but only £15,000 of that would be accessible in an account designated for apprenticeship programs. Meanwhile, the other £15,000 would be deemed levy payable and used to fund other aspects of the program, such as the co-investment scheme mentioned above.

1. 5. 5. Does the Government Make Any Contributions to the Levy?

The government will top up every contribution by 10 percent, so for every £1 that’s contributed to the levy account, the government deposits an additional £0.10. Thus, if a company has a £3 million payroll, they would be required to pay £15,000 into the levy and the government would increase that amount by £1,500 to allow for a total apprenticeship allowance of £16,500.

1. 6. 6. How and When are Levy Payments Made?

As of April 2017, businesses that meet the threshold are required to pay into the levy on a monthly basis. Payments are made to HMRC via the PAYE process. The government has provided a guide on how to pay the levy and properly report payments.

1. 7. 7. When are Apprenticeship Allowance Funds Accessible?

As each monthly levy payment goes out, it will become visible in the company’s digital apprenticeship account within a few days of the deposit. Once the funds post to the business’ account, they can be used at any time to pay for UK-based services related to apprenticeship training and assessment. However, there are rules regarding which kinds of services and providers can be used.

1. 8. 8. How Long Can Funds Stay in the Levy Account?

Allowance funds that accrue in a company’s levy account will automatically expire 18 months after being posted unless they’re spent on apprenticeship services within that time frame. This ensures that businesses are motivated to use the funds for their intended purpose each year, rather than letting them accrue for an extended period of time.

1. 9. 9. What Happens to Unused Levy Funds?

Funds that aren’t used within 18 months are contributed to the apprenticeship service to help pay for government contributions and other program costs. Expired funds will primarily be used to help fund smaller SMEs that are not required to pay the levy. This includes any top-ups that the government contributes to each levy payment. The government estimates that a total of £2.5 billion will be raised by the levy, and that amount should be sufficient to help fund apprenticeships for both large and small companies because many employers will be letting some of their funds expire.

1. 10. 10. How Do Non-Levy Paying Companies Pay for Apprenticeships?

Non-levy paying SMEs can take advantage of apprenticeship assistance by selecting a provider, agreeing on a purchase price for the service, and making the minimum required contribution. The government will cover the rest of the cost, up to a cap, once the initial arrangement and contribution have been made. Employers will make payments directly to the service provider and the costs can be split up over an agreed schedule. When an apprentice completes their training, the government will provide a bonus payment to the SME. If the apprentices are aged 16-18 or the business has fewer than 50 employees, the government may cover 100 percent of the cost.

1. 11. What to Expect from the New Apprenticeship Service

To complement the levy, the government has created a digital apprenticeship service that can be used as a platform for selecting frameworks and standards, comparing and choosing service providers, selecting assessment providers, and posting apprenticeship opportunities and vacancies.

Right now, payments are made directly to providers, but by 2020, the government aims to facilitate payments for training and assessment services directly within the platform. It’s already possible to manage funds and invest in services within the specialised online account interface.

While the apprenticeship scheme has been seeing less-than-ideal results, with a surprisingly significant reduction in apprenticeships following its implementation, the government expects positive growth to occur in the next one to two years, as more business owners and managers become familiar with thepotential benefits of the program.