The government apprenticeship levy is a form of taxation designed to help companies offer more apprenticeships. It was introduced to benefit businesses by boosting essential training and developing apprenticeship programmes.
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 (the apprenticeship threshold)
- It is used to fund apprenticeship training
- The levy is charged at 0.5% of an employer’s total payroll (apprenticeship levy allowance)
- It is collected monthly through PAYE.
Lifetime is an award-winning apprenticeship training provider with the expertise to help you make the most out of using your apprenticeship levy. Whether you’re a levy paying employer or a small business exploring your options, Lifetime will work with you to understand apprenticeship funding and maximise your return on investment. Find out how we develop ambitious apprenticeship levy strategies for our partners, to maximise funds and minimise expiration.
Apprenticeship levy explained
The apprenticeship levy was introduced as a government scheme to fund apprenticeships. HMRC apprenticeship levy rules state that employers that meet the apprenticeship threshold and have a payroll of more than £3 million must pay a 0.5% levy on their total payroll, offset by a £15,000 government apprenticeship levy allowance.
The levy is paid monthly through PAYE alongside income tax and national insurance contributions. Employers must declare the apprenticeship levy each month from the start of the financial year (find out more here).
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. Find out how to calculate the apprenticeship levy here.
The apprenticeship levy came into effect on 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
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.
The apprenticeship levy can only be used within England, as apprenticeship legislation differs across the devolved nations. For this reason, levy funded apprenticeships 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.
Non-levy paying 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.
Essentially, it's where one levy-paying employer agrees to transfer a proportion of their levy funds to another employer. They can then use this fund in full to train an apprentice. Want to know how it could work for you? Find out about levy transfers here.
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.
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.
Find the latest information on government incentives here.
Co-investment and apprenticeship levy connected companies
The co-investment option sees employers pay 5% of apprenticeship course costs, with the government contributing the remaining 95%. This means that non-levy paying 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. Non-levy payers are able to reserve a maximum of 10 apprenticeship starts a year.
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.
Have more questions? Get in touch with our expert team to find out how we can optimise your apprenticeship levy.
Apprenticeship levy funding rules
There are a few apprenticeship funding rules to keep in mind when using the government apprenticeship levy to make sure your funds are used correctly.
What can employers spend 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.
No matter where you are on your apprenticeship journey, we’re can help optimise your apprenticeship levy.
Get expert adviceThe Aldi apprenticeship programme delivered in partnership with Lifetime has added great value to Aldi as an employer. I first-hand have seen the significantly positive impact it has had to our business and stores.
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