Apprenticeship Levy: What You Need to Know

The new government initiative will require larger businesses to invest in apprenticeships from 6 April 2017

Apprenticeship Levy: What You Need to Know

With the confirmation that the Apprenticeship Levy will come into affect in less than six months, we take a look at what business owners need to know.

What is it?

The Apprenticeship Levy is a government-led initiative that will require businesses to make an investment in apprenticeships.

How much will it cost?

The levy will be charged at a rate of 0.5% of a business’s annual pay bill. There will be a levy allowance of £15,000 per year to offset against the levy, meaning only businesses who have a payroll bill above £3m will be obliged to pay. As an example:

Example 1: an employer who would pay the levy

An employer with an annual pay bill of £5m:

  • levy sum: 0.5% x £5m = £25,000
  • subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment

Example 2: an employer who would not have to pay the levy

An employer with an annual pay bill of £2m:

  • levy sum: 0.5% x £2,000,000 = £10,000
  • subtracting levy allowance: £10,000 – £15,000 = £0 annual levy payment

When is the apprenticeship levy being introduced?

Required businesses will start paying the levy from 6 April 2017.

Who does the levy affect?

All employers in the UK who have an annual payroll bill greater than £3m will be legally required to pay the levy. It applies to employers in all sectors – including those already covered by statutory levy arrangements (e.g. construction and engineering construction).

If you already pay a levy, your industry training board (ITB) will consult with you on potential changes to your existing levy arrangements.

Why is it being introduced?

The apprenticeship levy is being introduced primarily in the hope it will fill any skill gaps businesses have now or in the future. It also ties in with the government’s current pledge to support 3 million high quality apprenticeships over their current term (2015 to 2020).

How do you pay it?

The levy will be collected monthly through Pay As You Earn (PAYE) alongside Income Tax and National Insurance.

You will calculate, report and pay your levy to HMRC, through the PAYE process alongside tax and NICs.

What do you get back?

Although some of the finer details about the legislation are unclear, it was announced in the last budget that the government will ‘top up’ your levy by 10%.

The levy can be used to cover the direct costs associated with training apprentices.

Direct costs include:

  • Training that supports learners in fulfilling the requirements of their apprenticeship.
  • Formal assessments associated with learners’ apprenticeship

Indirect costs will not be covered by the levy and these include:

  • Apprentices’ wages
  • The wages of apprentices’ line managers and colleagues supporting them through their apprenticeship
  • Training that is specific to your business but not linked to the requirements of the apprenticeship such as corporate induction or health and safety
  • Training for employees who are not apprentices
  • Training costs for apprentices who started their apprenticeship before 6th April 2017

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