Understanding The Apprenticeship Levy

The government is introducing a tax designed to stimulate the UK's apprenticeship schemes - what do employers need to know?

To meet the UK government's goal of training 3 million new apprentices by 2020, the Apprenticeship Levy will be introduced in April 2017. Although the levy applies to thousands of businesses, recent research suggests 39% of employers do not understand what the levy is, or does. To ensure no unpleasant payroll surprises next year, it's worth becoming familiar with the details... 

What is the Apprenticeship Levy?

Essentially, the Apprenticeship Levy is a tax designed to change the way the UK's apprenticeship schemes are funded. The tax will be charged at a rate of 0.5% of total pay bill (the total subject to Class 1 National Insurance Contributions), and be payable by businesses with current payrolls of £3 million or more - including nonprofits and charities. Like National Insurance contributions, levy payments will be made to HMRC through the PAYE system. 

Levy Allowance

To offset the levy, the government is introducing an annual £15,000 allowance which may be subtracted from the total amount your business owes. The allowance is administered on a monthly basis, and is cumulative - any unused allowance can be carried over to the next payroll month.

Digital Apprenticeship Service

The tax will be fed back to employers through a special digital apprenticeship service.  Levy-paying employers (in England) will gain access to their own account, which will offer a range of apprenticeship tools:

  • The digital service will host a range of government approved, Ofsted-rated training providers.
  • Employers can use their account to identify training providers, advertise vacancies and select apprenticeship candidates.
  • Funds can be used to train, assess and certify apprentices - but will be capped depending on level and type of apprenticeship. Funds may not be used to cover apprentice wages, or supervision costs.
  • The government will apply a 10% top-up on funds accessed through the scheme.
  • Funds will be available as vouchers with a 24 month expiry date.
  • While  initially available only to levy-paying businesses, the digital service will eventually expand to all UK businesses.
  • Similar services will be introduced in Scotland, Wales and Northern Ireland.

The Apprenticeship Levy is targeted at bigger businesses but plenty of medium-sized businesses will also be affected. Make sure you understand your tax obligations to the Apprenticeship Levy, before it comes into play, by exploring HMRC's guidance on the topic.