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The apprenticeship levy

The government is to introduce an apprenticeship levy which will apply to large employers from 6 April 2017. It will require businesses with a wage roll of over £3 million per year to make an investment in apprenticeships to encourage employers to commit to training apprentices in the hope that current skills shortages will be addressed.

The levy will be charged at a rate of 0.5% of the employer’s annual wage roll (calculated by reference to its employees’ earnings that are subject to Class 1 National Insurance contributions), less a ‘levy allowance’ of £15,000. It is notable that the levy allowance can only be applied to connected companies and charities once, irrespective of the number of companies within the group which are subject to the apprenticeship levy. In these circumstances employers are encouraged to consider which proportion of the levy allowance each company in the group will be entitled to, as this is then fixed for that tax year.

Payment of the levy must be processed via PAYE on a monthly basis, with the first payment commencing in May 2017. Once the levy has been declared to HMRC, funding will be made available to employers via a digital apprenticeship service account, which will enable them to select an apprenticeship framework, to post apprenticeship vacancies, to choose training providers and apprenticeship assessors and to choose the organisation to assess the apprentices. The funding cannot be used to pay other costs associated with the apprentices (such as salary, travel costs or the cost setting up an apprenticeship programme).

The funding available will be linked to the value of the employer’s contributions and the proportion of employees working in England to which a 10% top-up is then applied. Additional funding is also available for the training of apprentices in deprived areas and those between the ages of 16 and 18. Whatever the level of funding, employers are to be made aware that the funds expire 24 months after they enter the digital account if they have not been spent on apprenticeship training.

Employers who are not obliged to pay the apprenticeship levy will eventually be required to use the digital apprenticeship service to pay for apprenticeship training. It is currently anticipated that by 2020 all employers will be able to use this service, although those who do not pay the levy will be introduced to the service from 2018.

In the meantime, and when the new funding system commences, smaller employers can choose the training their apprentice will receive but they will be asked to contribute 10% of the cost, with the government to pay the remaining 90% (subject to a cap which is determined by the relevant funding band; the upper limit of which currently range from £1,500 to £27,000). Those companies with fewer than 50 employees will not be required to pay a contribution towards the training costs of 16 to 18 year old apprentices, as it is currently envisaged that the government will pay 100% of those training costs.

It has been suggested that further guidance will be published by the HMRC in relation to the apprenticeship levy later this month but as yet no date has been released for publication. In the meantime, the skills funding agency has designed an indicative online tool to assist with the calculation of the levy: which may be of assistance.


If you would like more information or advice relating to this article or an Employment law matter, please do not hesitate to contact Domonique McRae on 01727 798023 or 020 7183 5683.

© SA LAW 2018

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them alone. You are recommended to obtain specific advice in respect of individual cases.

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