What is the Apprenticeship Levy?

Put simply, it is a tax on employers which can be used to fund essential training and development through apprenticeship programmes.

The levy was designed to put apprenticeship funding in the hands of employers and encourage them to invest in and create apprenticeships. Currently it:

• applies to employers with an annual pay bill of more than £3 million
• can only be used to fund apprenticeship training
• is charged at 0.5% of an employer’s total payroll
• is collected monthly through PAYE

How does the apprenticeship levy work?

If you’re an employer in the UK, you’ll either be a ‘levy-payer’ or ‘non-levy payer’.

Levy payers:  If you’re an employer with a yearly pay bill of more than £3 million (at a rate of 0.5% of your total bill) you must pay this tax whether you employ an apprentice or not.

Non-levy payers: If your pay bill falls below the £3 million total, then your business doesn’t have to pay the levy.

While the levy was put forward in 2015, it did not come into effect until 6th April 2017 and as such, employers whose payroll was more than £3 million at this time had to start paying their levy from this date. This meant contributing 0.5% of their total payroll, offset by a £15,000 government allowance.

The levy is paid monthly to HMRC through Pay-as-you-earn (PAYE) alongside income tax and national insurance contributions and employers receive a 10% contribution from the government each month. The business will then get access to the Digital Apprenticeship Service (DAS); an online portal where funds can be used to recruit new talent and purchase training.

What can employers spend their Apprenticeship Levy on?

When the government introduced the apprenticeship levy, they outlined a set of employer rules which defined what levy funds could and couldn’t be used for in order to prevent the misuse of funds.

In summary, these rules state that employers must spend their apprenticeship levy funding on training employees through apprenticeships and end-point assessments with an approved training provider.

The levy doesn’t just have to be used to hire new staff but can also be used to train existing employees, allowing businesses to upskill and grow their workforce effectively.

They do, however, state that levy cannot be spent on the following:

• Travel or accommodation costs for apprentices
• Enrolment
• Apprentice wages
• Personal protective clothing and safety equipment required by the apprentice
• Development of original teaching materials
• Off-the-job training delivered by self-directed distance learning
• Additional training outside of the apprenticeship programme
• Managerial time

What happens If employers don’t spend their levy?

There is a deadline on levy funds, and it’s important to remember that they don’t last forever. If a business doesn’t spend the levy fund in its digital employer account within 24 months, it will expire and be transferred back to the government.

In May 2021, it was reported that unspent levy of £250 million was handed back to the Treasury in 2020/21, with suggestions that the demand for apprenticeships was much lower due to the coronavirus pandemic.

However, there is an alternative way to spend your levy!

If you still have levy funds left that are at risk of being lost then you can transfer your funds to other organisations. Levy paying businesses can transfer up to 25% of their annual funds to as many employers as they choose to help them fund apprenticeship training in their business. This is how the apprenticeship levy can work for SMEs even if they don’t pay it themselves. 

The apprenticeship service calculates this amount by:

• the total amount of levy declared in the previous tax year
• with the English percentage applied
• plus the payment of 10% from the government

These funds will be paid monthly for the duration of the funded apprenticeship.

Key things to know about Levy transfer:

• Transfers can only be used for new starts and not for current apprentices
• Receiving Employers who do not pay the levy can only add apprentices to their Digital Account that are being funded through a levy transfer
• The Sending Employer has final agreement of the apprenticeships they agree to fund
• Transfer funds can only be used for training and assessment on apprenticeship standards

If you are a levy-paying employer who wants to transfer your unspent levy funds, or an SME who would benefit from receiving a levy transfer then we can help. We’ve helped large employers transfer their levy, as well as working with SMEs to help them make the most of a levy transfer.

Can levy-paying businesses access additional funding?  

Employers can claim a £1,000 payment for hiring an apprentice:

• aged 16 to 18 years old
• under 25 with an education, health and care plan or who has been in the care of their local authority

How do I know if my employer is a levy-paying business?

If you’re interested in training in a new skill or upskilling through an apprenticeship scheme then it’s worth speaking to your employer about what they can offer. If your employer is a levy-paying business, then it could be a win-win for both you and your employer.

If you’re unsure if your employer pays the Apprenticeship Levy, then we would suggest that you speak to your manager or HR department within your organisation. If you want to do an apprenticeship, then you’ll need to do it in partnership with an employer and so speaking to them should always be the first step.

What if an employer’s levy funds don’t cover the cost of training?

If an employer’s levy funds don’t cover the cost of training, then there is additional government support available. In this case, the government will pay 95% of the additional costs with the employer then paying the remaining 5%.

How do employers transfer their levy to another business?

A levy transfer can be done at any time, as long as you have enough unspent fund to transfer to another employer. The first step in transferring funds should be to connect with a receiving organisation and agree on the details of the transfer.

Once both employers are registered on the apprenticeship service, the following must be done in their accounts to complete a transfer:

• connect with each other
• receiving employer to add the apprentice details
• confirm the transfer

Want some help with transferring apprenticeship levy funds?

If you have unspent levy funds but aren’t sure how or who to transfer them to, we can help.

Our team works hard to connect large employers with SMEs who are looking to take on and train an apprentice, and it’s been fantastic to help make that happen.