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Apprenticeship levy – what does it mean for your business?

Guest blog by Helen Young CMIIA | 26 October 2017

What is the apprenticeship levy?

From 6 April 2017 the government introduced a new way for all UK employers, whether in the public or private sector, to fund apprenticeships.

UK employers who have an annual pay bill in excessive of £3 million are required to pay the levy (0.5% of a company’s annual pay bill). The first levy payment was payable on April 2017’s payroll.

Employers who are not liable to make levy payments have seen changes to apprenticeship funding and are required to co-invest, ie the government contributes 90% of the cost of training with the employer paying the remaining 10%.

The new apprenticeship funding commenced on 1 May 2017 and therefore any apprenticeships starting after this date will be funded under the new system, this also applies to non-levy-payers.

The apprenticeship levy can only be used for apprentices training and end-point assessments/qualifications. It cannot be used on, for example: wages, travel and subsistence, or setting up an apprenticeship programme.

The levy fund can be spent on apprentice training for existing staff or new recruits as long as the training meets an approved standard or framework and the individual meets the apprentice eligibility criteria.

How do you calculate your annual pay bill?

The annual pay bill is calculated as all payments to employees that are subject to employer Class 1 secondary national insurance contributions (NICs), such as wages, bonuses and commissions. It also includes payments to:

  • all employees earning below the lower earnings limit and the secondary threshold
  • employees under the age of 21
  • apprentices under the age of 25

The annual pay bill does not include:

  • earnings of employees under the age of 16
  • earnings of employees who aren’t subject to UK NICs legislation
  • earnings on which Class 1A NICs are payable, such as benefits in kind

What is the fixed annual allowance?

Employers receive a £15,000 fixed annual allowance which is offset against the levy payment. For example:

  • Company X has an annual pay bill of £3m therefore they would be required to pay a levy of £15,000 (ie 0.5% of £3m). As a result of the allowance Company X would be required to make a payment of £0.
  • Company Y has an annual pay bill of £10m therefore they would be required to pay a levy of £50,000 (ie 0.5% of £10m). As a result of the allowance Company Y would be required to make a payment of £35,000.

How does the payment work?

On a monthly basis the employer must notify the HMRC whether it is required to pay an apprenticeship levy. The employer must then include the levy amount in the usual PAYE payment to the HRMC. This should be done by the 19th day (or 22nd day if reporting electronically) of the following month. The funds will subsequently appear in each employer’s digital account.

For example: the levy came into effect on 6 May 2017 with the first levy being payable from Aprils payroll. These funds will have appeared in the employer’s digital account after 22 May 2017.

How do you manage apprenticeships and access funds?

A new online apprenticeship service was established to enable employers to access and view the funds available from May 2017. The funds in the employers account will be entered on a monthly basis with a 10% uplift and will be available to spend on apprenticeship training in England. (Please note that the devolved administrators of Scotland, Wales and Northern Ireland have their own arrangements for supporting employers to access apprenticeships.)

The apprenticeship service can also be used to select an apprenticeship framework/service, choose a training provider (all of whom must be on the register of apprenticeship training providers), choose an assessment organisation from the register of apprentice assessment organisations and advertise apprenticeships. Levy paying employers can also set the agreed price with their training provider, pay for training and assessment and stop/pause payments if required.

Apprentices employed by an Apprenticeship Training Agency (ATA) – the funds in the digital account cannot be used to pay for training and assessment costs, these costs must continue to be met by the ATA.

From 2018 the government has committed to allowing employers to transfer up to 10% of the annual value of funds entering their accounts to other employers or ATAs.

It is important to note that funds will expire after 24 months if not utilised. Guidance suggests that payments will be taken from the funds that enter the account first to minimise expired funds.

Employers who spend all of their funds in their digital account will be able to make a 10% contribution for additional apprenticeships and the government with fund the remaining 90% up to the band maximum.

The cost of the apprenticeship training and assessment depends upon the band that the apprenticeship is in. There are 15 funding bands with an upper limit of between £1,500 and £27,000. Employers are expected to negotiate a price for training and assessment within the band maximum. The employer is free to negotiate a price outside the band maximum however the additional cost is at the expense of the employer.

Apprenticeships in internal audit

There are two apprenticeships in development, an internal audit practitioner standard and an internal audit professional standard. It is critical to the development that we hear your views on how the standards would work for you and your organisation. 

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Content reviewed: 1 February 2023