‘Use it or lose it’ – Accessing your Apprenticeship Levy and releasing its potential

Following the major reforms to apprenticeships in 2012, it’s possible that if you work in certain sectors (e.g. retail banking and insurance), you may have heard about, or even participated in, an apprentice levy scheme and are perhaps already aware of the mutual benefits for employers, apprentices and training providers. If not, it was introduced in April 2017 and is essentially a tax of 0.5% on those UK employers with annual wage-bills of £3 million and over. Employers pay their levy contributions into a digital account held by HMRC and they can then ‘spend’ their contributions on apprenticeships delivered by registered training providers to apprentices.

In its first year the levy raised £2.7 billion and this is expected to rise to £3.4 billion by 2023-24. But barely into its 3rd year of operation, the apprenticeship levy scheme has been condemned by think-tank EDSK as a “farce”, with more than half of apprenticeships reported as “fake” and the scheme being – at best – a “re- badging and re-labelling of existing training courses by some employers and universities”.

Employment has evolved considerably. Over the past 10 years, there’s been greater flexibility, more home working, a rise in self-employment, a steady decline in some traditional sectors (especially retail and manufacturing) and the growth of digital which is transforming the way in which we spend and fulfil our working lives. The main challenges for employers and businesses are access to and continual replenishment of a pool of talented and skilled people without incurring huge costs, debts and liabilities; finding roles for them as the business hopefully grows and ensuring that the apprenticeship levy is working in such a way that young people can fully access the employment market and employers and businesses get a meaningful return on their investment in people.

Set out below is a selection of FAQs and worked examples intended to show an overview of how the apprentice levy scheme works in terms of its conditions, costs, benefits and incentives offered to employers – whether you are public or private UK employer, fall below the £3m wages-bill-threshold, a Small-to- Medium Enterprise (SME) with less than 50 people or an employer who does not pay into the levy scheme. The last section covers changes with effect from January 2020 for employers who do not pay the apprenticeship levy and guidance on how to reserve funds.

  • Which employees are eligible for and can benefit from an apprenticeship scheme? Despite recent criticism, the apprentice levy funds are available to existing staff of all ages (including those with degrees) either going into new roles or requiring new/different skills as well as to new joiners.

  • Who pays the Apprenticeship Levy? It applies to both public and private UK employers across all sectors with an annual payroll of more than £3m.

  • How much is the apprenticeship Levy and what if it’s not all used up? This is currently set at 0.5% of your total payroll (£3m) and collected monthly via PAYE…

    Employers can also transfer 25% of their funds to another employer.

  • How much does an apprenticeship cost? Precise amounts can’t be quoted here because costs will vary from employer to employer. However, a rough estimate would range between £1,500 to £27,000, although it may be more depending on what other training and development the employer provides.

  • If an employer pays the levy, but funds don’t stretch to the full cost of the intended apprenticeship training, the Government will pay 95% of additional costs up to the maximum of the relevant funding band. The employer “co-invests” the remaining 5%.

  • Can employers get back more than they put in? Yes, those who pay the levy in England receive a 10% top up from the government, thus for every £1000 paid in, you get another £100.

  • What are the incentives for employing 16-18 year olds. If an employer takes on a 16-18 year old apprentice, they will receive a monetary amount paid in 2 instalments after the third and 12 month stages. In addition, an extra amount is available for apprentices aged 19-24 who are from a disadvantaged background, or have specific learning requirements.

  • How long do employers have before the “Levy runs dry”? Funds will expire 24 months after being placed into the employer account if they’re not used. The account works on a first-in, first-out basis. So, whenever a payment is taken from the account, it automatically uses the funds that are first entered into it. It’s a case of ‘Use ‘em, or lose ‘em’.

  • Payments for apprenticeship training are spread across the lifespan of the apprenticeship – so employers need to make sure there’s enough in the account to meet the monthly payments made to the training provider. On completion of the apprenticeship, the 20% which is held back is then taken from the employer’s Digital Apprenticeship Service online account. (DAS).

  • Can employers who fall below £3m annual wage bill threshold still access the Apprenticeship Levy scheme? Yes, with no levy to pay. These employers need only ‘co-invest’ 5% towards the cost of apprenticeships as the government will pay the remaining 95%. The maximum amount will depend on which of the 15 funding bands is selected for an apprenticeship.

To discuss your requirements or to find out how your organisation could be utilising apprenticeships get in touch with us today by either email us at apprenticeships@fstp.co.uk or call us directly on 02031784230.

Apprenticeships Team