This page answers common questions about the Apprenticeship Levy and how small to medium sized employers which don’t pay the levy get funding for Apprenticeships.
Download our Apprenticeship guides for Levy paying employers and non-Levy paying employers.
Who pays the Apprenticeship Levy?
The Apprenticeship Levy applies to both public and private UK employers across all sectors with an annual payroll of more than £3m.
What counts as your payroll?
Your payroll is based on the total amount of earnings subject to Class 1 secondary NICs. Earnings include any remuneration coming from employment, such as wages, bonuses, commissions and pension contributions that you pay NICs on but not benefits in kind.
How much is the Apprenticeship Levy?
The Apprenticeship Levy is set at 0.5% of your total payroll and is collected monthly via PAYE. There is a £15,000 fixed annual levy allowance that employers can offset against their levy payments.
The levy allowance operates on a monthly basis and accumulates over the year. This means you have an allowance of £1,250 a month. Any unused allowance is carried over from one month to the next.
EXAMPLE: Calculating what you have to pay
An employer with an annual wage bill of £5m
Levy sum: 0.5% of £5,000,000 = £25,000
Offset allowance of £15,000 (£25,000-£15,000) = £10,000
Annual levy payment = £10,000 (£833.33 per month)
What happens if you are in a group of companies?
Where a group of employers are connected you can only use one £15,000 allowance. Therefore, you must decide what proportion of the levy allowance each employer in the group will be entitled to.
Skills Training UK’s Apprenticeship Consultancy Service can help allocate this allowance – ensuring you receive maximum return on investment and make best use of the funds available.
How do employers get back more than they put it?
Employers that pay the levy in England receive a 10% top-up from the government. It means that for every £1 you contribute, you receive £1.10.
How are Apprenticeships paid for and are they affordable?
Payments to the training provider are spread across the entire lifetime of the apprenticeship with the last 20% paid as the final instalment. This means that you don’t have to meet the full cost of the apprenticeship at the start of the training.
You just need enough funds in your account to meet the monthly payments.
Skills Training UK can help you to manage this process – making clear the full cost of the apprenticeship/s, the amount of funds that are available and how much you must pay every month.
Because the cost is spread over the length of the programme, apprenticeships are much more affordable than you might think.
Do levy funds run out?
Yes. Levy funds will expire 24 months after they enter your digital account unless you spend them. For example, funds that entered your account in July 2020 will expire in July 2022.
If you don’t use them, you will lose them.
The account works on a first-in, first-out basis. Whenever a payment is taken from your digital account it automatically uses the funds that entered your account first.
Skills Training UK’s Apprenticeship Consultancy Service can help you to effectively manage your funds, ensuring you receive maximum return on investment.<
What can Apprenticeship Levy funds pay for?
Levy funds can pay for apprenticeship training and assessment. This must be with an approved training provider (such as Skills Training UK) and a registered end-point assessment organisation.
They cannot pay for Apprentices’ wages, travel or subsidiary costs, managerial costs, work placements, traineeships or the costs of setting up an Apprenticeship programme.
How much will an Apprenticeship cost?
Each Apprenticeship Standard (there are over 550 different Apprenticeship Standards) has been placed into one of 30 funding bands ranging from £1,500 to £27,000. These bands determine the maximum amount that can be spent on each apprenticeship.
The upper limit of the funding band also caps the maximum price that the government will ‘co-invest’ if an employer does not pay the Apprenticeship Levy or has insufficient funds to pay for the number of Apprenticeships they want to use.
Is there an age limit for Apprenticeship training?
Apprenticeships can be offered to new recruits or existing employees of all ages and at any level. Older staff, even those with degrees, can do an apprenticeship training programme if they are taking on new roles or require new knowledge and skills.
Can employers transfer their levy to other employers?
Yes. You can transfer 25% of your funds to another employer’s digital account.
What happens if an employer’s levy funds don’t cover the full cost of training?
If an employer pays the Apprenticeship Levy but their funds don’t cover the full cost of the Apprenticeship training, then additional support is available.
The government will pay 95% of the additional costs (up to the maximum of the relevant funding band) – with you as the employer ‘co-investing’ 5%.
Employer with a levy pot of £35,000 takes on five apprentices
Agreed cost = £9,000 each
Total Apprenticeship spend = £45,000
Shortfall = £10,000
Government pays 95% = £9,500
Employer pays 10% = £500
Total spend by employer = £35,500 (£35,000 + £500)
Total contribution from government = £9,500
What are the additional financial incentives?
As an additional incentive during the COVID-19 pandemic, employers receive £2,000 for each new apprentice aged 16-24 who starts their contract of employment between 1 August 2020 and 31 January 2021, or £1,500 for each new apprentice aged 25+.
Employers also receive an extra £1,000 for taking on an Apprentice aged 16-18. The money is paid in two stages – at three and 12 months. This is also available for Apprentices aged 19-24 with additional learning needs or who come from a disadvantaged background.
What happens if employers take on an apprentice who needs help with English and maths?
If you employ an apprentice who needs extra help with English and maths, additional payments are made to your training provider. This does not come out of your Apprenticeship Levy funds.
How do smaller SME employers manage and pay for apprenticeships?
Employers with an annual wage bill of less than £3m do not pay the Apprenticeship Levy.
From April 2021 all non-levy employers are required to manage their apprenticeships through an on the Government’s Digital Apprenticeship Service system. After you have registered, you’ll be able to access and manage apprenticeship funding.
As a smaller non-levy paying employer you pay just 5% (knows as a ‘co-investment’) toward the cost of each Apprenticeship and the government will pay the remaining 95%.
The maximum cost will depend upon which one of the 30 funding bands the Apprenticeship Standard falls into.
The co-investment payment of 5% is made direct to the training provider.
Employers with fewer than 50 employees can train, at no cost, those aged 16-18 or those aged 19-24 who have previously been in care or who have a Local Authority Education, Health and Care plan. These employers are not required to contribute the 5% co-investment; instead, the government will pay 100% of the training costs for these individuals up to the funding band maximum.
What are the financial incentives for SME employers?
Employers with fewer than 50 employees can train, at no cost, those aged 16-18 or those aged 19-24 who have previously been in care or who have a Local Authority Education, Health and Care plan.
These employers are not required to contribute the 5% co-investment; instead, the government will pay 100% of the training costs for these individuals up to the funding band maximum.
The Chancellor has announced additional incentives in the Skills for Recovery plan and up-to-date details of these can be found [here].
How do non-levy paying employers pay for Apprenticeships training?
From April 2021 all non-levy employers are required to manage their apprenticeships through an account on the Government’s Digital Apprenticeship Service system. After you have registered, you’ll be able to access and manage apprenticeship funding.