What is the apprenticeship levy?

The apprenticeship levy is a form of taxation designed to help companies offer more apprenticeships. It was originally introduced to benefit businesses by boosting essential training and developing apprenticeship programs It is known as the levy.

The apprenticeship levy can be incredibly beneficial to businesses, boosting essential training and developing apprenticeship programs as well as increasing employee engagement.

The government apprenticeship levy is a tax paid by employers. It is then stored in a fund which can be accessed to help pay for apprenticeship training costs.

  • It applies to those with a payroll of more than £3 million
  • It is used to fund apprenticeship training
  • The levy is charged at 0.5% of an employer’s total payroll
  • It is collected monthly through PAYE.

Lifetime Training is an award-winning apprenticeship training provider with the expertise to help you make the most out of your apprenticeship levy. Whether you’re a levy paying employer or a small business exploring your options, Lifetime Training will work with you to understand apprenticeship funding and maximise your return on investment.

Apprenticeship levy explained

The apprenticeship levy was introduced as a government scheme to fund apprenticeships. Apprenticeship levy rules state that employers with a payroll of more than £3 million must pay a 0.5% levy on their total payroll, offset by a £15,000 government allowance. The levy is paid monthly through PAYE alongside income tax and national insurance contributions.

Levy contributions appear in a digital account which can be used by the employer to arrange and pay for apprenticeship training. The funds can only be spent on apprenticeship training or End-point Assessment according to apprenticeship levy rules.

After 24 months any unused levy funds expire and return to the government.

Non levy-paying employers can pay 5% of the apprenticeship course cost, and the government will cover the remaining 95% through the process of ‘co-investment’.

If your payroll is more than £3 million, you’re already invested in the levy.

When was the apprenticeship levy start date?

The apprenticeship levy came into effect from 6th April 2017 having been proposed in the 2015 budget by the then-chancellor George Osborne. Any employer subject to the payroll threshold of more than £3 million would start paying their monthly levy from that date.

When is the apprenticeship levy payable?

All eligible employers will have to pay the 0.5% apprenticeship levy amount at the end of every month. This is collected automatically by HMRC through the employer’s PAYE system.

Who can use the apprenticeship levy?

The apprenticeship levy can only be used within England, as apprenticeship legislation differs across the devolved nations. For this reason, apprentices funded by the levy must work at least 50% of their time within England. The amount of levy you can access is directly linked to the proportion of your employees living in England.

Unlevied employers can use the levy through a transfer of funds from a levy paying employer. Employers can transfer up to 25% of their annual levy fund to another business, for example a company in its supply chain.

With many years of experience, we have all the tools needed to support your success.

Apprenticeship funding for employers

Government incentives

  • Employers that take on an apprentice aged 16 to 18 will receive a £1,000 government incentive to help with the costs associated with taking on a younger worker.
  • Employers that take on an apprentice aged between 19 and 24 who have previously been in care can also access a £1,000 government payment.
  • Small employers below 50 people can train apprentices aged 19 to 24 who have left care at no cost.

Co-investment

The co-investment option sees employers pay 5% of apprenticeship course costs, with the government contributing the remaining 95%. This means that non-levied companies have the option to access an apprenticeship programme by paying 5% of the cost.

If a levy paying company runs out of funding in their account, the co-investment option is available for them too. The co-investment rate was reduced from 10% to 5% in April 2019.

Government contribution for levy payers

The government tops up all levy payments into your digital account by 10%. As an example, for every £100 an employer pays into their levy fund, there will be £110 in the digital account.

Using the apprenticeship levy

The levy funds sit in a digital ‘apprenticeship service’ account used by employers to fund apprenticeship training provision. The account is used to manage levy funding, track apprentices, find training providers, or transfer unused funds.

Any levy funds are topped up each month with a 10% government contribution. Any levy funds expire after 24 months, so it is vital to utilise your levy as soon as possible.

Once a programme and training provider has been selected and a price agreed, your provider will be paid out of your digital account every month. Apprenticeship levy rules state that your levy must only be used to pay for apprenticeship training and End-point Assessment, and cannot be used to pay apprentice wages.

Lifetime Training can help you get the most out of your levy investment.

Apprenticeship levy funding rules

There are a few apprenticeship levy rules to keep in mind when using the apprenticeship levy to make sure your funds are used correctly.

What can employers send apprenticeship levy funding on?

The funds can only be spent on apprenticeship training programmes or the End-point Assessment, and can’t be spent on wages or non-apprenticeship training programmes.

What happens to unused apprenticeship levy funds?

Your funds will expire 24 months after the date submitted, at which point unused funds will default back to the government. This is to incentivise regular expenditure on high-quality apprenticeship training. When paying for apprenticeship training, the government will always use the oldest funds in your account first to minimise the window for fund expiry.

Understanding the apprenticeship levy transfer initiative

What is a Levy Transfer?

A levy transfer is where one levy paying employer agrees to transfer a proportion of their levy funds to another employer for them to use in full to train an apprentice.

Who can the transferred money go to?

Sending Employers can find Receiving Employers who would benefit from receiving a transfer. For example, this could be:

  • A member of a company’s supply chain
  • A local business
  • A charity that is connected to a company

How much can be transferred?

Levy-paying Sending Employers can transfer a maximum amount of 25% of their annual funds. They can make transfers to as many Receiving Employers as they choose.

What will I need in place to take part?

To take part in the scheme you will need to have a Digital Apprenticeship Account set up.

Make the most out of your apprenticeship levy

Apprenticeships can be used to engage current employees, upskill teams, and attract new talent. If you’re an employer with a payroll of more than £3 million, you’ll have been paying into your levy pot since the apprenticeship levy came into place.

Lifetime Training can help you make the most out of your levy spend, utilising apprenticeships to:

  • Complement your existing training provision
  • Upskill your current team and provide career development.
  • Attract future talent and support succession planning.
  • Enhance employee satisfaction and improve retention rates.

No matter where you are on your apprenticeship journey – we’re here to help. Get in touch today to find out more.