The Apprenticeship levy is a new government initiative designed to encourage ‘big business’ to invest in Apprenticeships for new and existing employees.

In theory, all businesses are liable for the levy which is set at 0.5% of payroll. But because every business is given an offset levy allowance of £15,000, in practice only those companies with a payroll greater than £3 million a year will have to make any payments.

From April 2017, and every month thereafter, any employer operating in the UK, with an annual payroll bill over £3 million, will have to calculate and pay the levy to HMRC via PAYE.  As wages can vary each month, some employers may pay the levy one month but not the next.

Where companies are connected, only one £15,000 allowance can be shared between them. How this allowance is divided up must be decided at the beginning of the tax year and cannot be changed until the next tax year starts.

If during the year an employer becomes connected to a company which already pays the levy (and uses the allowance), that employer would immediately become liable to pay the levy on 100% of payroll as the allowance would have been allocated to the existing company. On the plus side, connected companies may pool their training funds into one account to pay for Apprenticeship training, read more about funding on the gov.uk site here.

Why is the Apprenticeship levy being introduced?

There is an urgent need to bridge the skills gap affecting many industries. The new and improved Apprenticeships are seen by the government as the solution. The levy has been put in place to ensure large employers invest in work-based training. And there are benefits to the new system:

  • Employers now get more choice in how their Apprenticeship training budget is used, deciding where and negotiating at what cost their apprentices will get trained.
  • The government will top-up whatever funds are in their Digital Apprenticeship Service Account by 10% each month.

Can I still recruit or train an apprentice if I don’t pay the levy?

If your payroll bill is less than £3 million a year, then you won’t pay the Apprenticeship Levy because your annual levy allowance of £15,000 will offset anything due. But you can still benefit from the advantages Apprenticeships deliver.

Small and medium sized businesses are currently responsible for over 50% (about 250,000) of annual apprenticeship starts, and have a critical role to play in improving the nation’s workforce.

If you have fewer than 50 employees and take on a 16-18-year old or a 19-24 year old who is a care leaver or who has an Education Healthcare Plan as an apprentice, the government will fully fund their training and pay £1,000 towards your internal costs.

For all other apprentices the government will pay 90% of the external training costs, with you paying the remaining 10% to the training provider you have chosen.