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Understanding The Apprenticeship Levy

Understanding The Apprenticeship Levy

To help employers make sense of the Apprenticeship Levy, we’ve put together a concise guide answering some of the most frequently asked questions.

If you have any further questions after reading this guide please do get in touch either via the contact page or via the links at the bottom of the page.

1. Where Has The Apprenticeship Levy Come From?

The Apprenticeship Levy was first announced in the government’s 2015 Summer Budget. The initiative proposes a Levy – essentially a tax to large employers as part of the government’s plan to help fund 3 million new Apprenticeships by 2020.

The new levy is designed to give employers around the country more control of their Apprenticeships, and ultimately increase the quality and quantity of young people entering the workforce today.

2. When Will It Come Into Effect?

The Levy will automatically come into effect from April 2017 through the Pay As You Earn (PAYE) system although not all companies will be financially affected (See below to understand how the Levy is calculated).

It will be payable by employers at the rate of 0.5% of the payroll cost through PAYE, similar to how Income Tax and National Insurance is deducted.

3. How Does The Levy Work in Practice?

In order for your business to be liable for a Levy Payment, your company must have a wage bill which exceeds £3 million or more. Currently it is estimated that only 2% of all UK employers are likely to be eligible for the payment.

Each employer receives a £15,000 “allowance” which offsets their Levy Payment. The Levy Payment is calculated by taking 0.5% of an employer’s overall wage bill.

Small-Medium Enterprises – Pay Roll < £3 million

Companies with a payroll less than £3 million won’t be eligible for any Levy Payments as they won’t exceed their allowance of £15,000.

Levy Sum: £2,000,000 x 0.5% = £10,000
Levy Allowance: £15,000
Levy Payment: £15,000 – £10,000 = -£5,000 (No Payment due)

Large Organisations – Pay Roll > £3 million

The Levy will apply to all large organisations with an annual payroll of over £3million per annum, regardless of whether they employ Apprentices or not.

Levy Sum: £5,000,000 x 0.5% = £25,000
Levy Allowance: £15,000
Levy Payment: £25,000 – £15,000 = £10,000 (Payment due)

4. How Does The Levy Fund Apprenticeships?

In England, Employers who pay the Apprenticeship Levy will essentially exchange Levy contributions for digital vouchers which can be used to fund further Apprenticeships.

Redeemable within 18 – 24 months, employers will also be eligible for a 10% “top-up” payment from the Government which is designed to further assist businesses who wish to invest more resources into Apprentices.

The aim of the government is to create a long term solution which is mutually beneficial to both parties: businesses continue to fill their skill shortages, and young people entering the world of work for the first time are greeted with a range of high quality career opportunities.

Digital Voucher

Vouchers will be redeemed digitally after the Apprenticeship has been completed and fully assessed by the ILR, whereas before some Apprenticeship payments were issued upfront.

5. How Will The Levy Affect Your Business?

It is anticipated that at least £2.5 billion raised by the Apprenticeship Levy in 2020 will be reinvested back into English Apprenticeships.

As this will represent almost double the investment in Apprenticeships, all businesses should benefit from better recruitment and support in the training of  Apprenticeships regardless of whether or not they pay the levy.

Although there are lots of different ways to classify the size of businesses for the sake of the Apprenticeship Levy, it simply comes down to whether or not your total payroll is less or greater than £3 million.

Public Sector

Public sector organisations aren’t exempt and will also pay the Levy if their payroll matches the above criteria. Additionally they are committed to ensuring that at least 2.32% of their workforce consists of Apprentices.

How Can Kent Training & Apprenticeships Help?

Our team of experienced partnership managers are here to help advise you and your business, conduct a training needs analysis or help you get started with an Apprenticeship.

 Click here to view contact information for your local partnership manager.

If you would like further clarification on any of the above, or general information surrounding Apprenticeships then please give the team a call on 0800 731 4297 or send an email to KT&A@kent.gov.uk.