Apprenticeship levy and funding

The Apprenticeship Levy funds apprenticeship training in England and allows employers to choose which apprenticeships they offer

The apprenticeship levy was introduced in April 2017 to create long term sustainable funding for apprenticeships and to give employers more control to provide their staff with a range of training opportunities.

Paying the apprenticeship levy

Large employers with a payroll of over £3 million per annum will pay the levy set at 0.5% of their total payroll and is collected through PAYE. The vast majority of employers (around 98%) will not have to pay the levy.

All employers receive an offset allowance of £15,000, equivalent to 0.5% on payroll of £3 million. Any employer with a payroll above this will be liable to pay the levy.

Smaller employers – those with a total annual pay bill of less than £3 million – will only have to pay 5% of the total cost of the apprenticeship, with the remainder being funded by the government, up to the funding band maximum for that programme.

Accessing funding

Employers in England are able to reclaim their levy contributions as digital vouchers to pay for training apprentices. Funds expire 24 months after entering the digital account, if not spent on apprenticeship training. Any unspent levy funds within each financial year are then used to support existing apprentices to complete their training, pay for apprenticeship training for smaller employers and additional payments to support apprentices.

The digital account works on a ‘first-in, first-out’ basis, so payments automatically draw from the funds which entered the account first.

Employers who pay the levy will receive a 10% top-up from the government towards monthly contributions. So, for every £1 an employer pays in, they can draw out £1.10 to spend on apprenticeship training through their digital account.

Training costs

The cost of training depends on the type of apprenticeship being undertaken. There are 15 funding bands ranging from £1,500 to £27,000.

Government funding, either through the levy digital account or co-investment for non-levy payers, cannot be used to pay for apprenticeship costs above the funding cap.

Funds in the digital account will pay for apprenticeship training and assessment, according to the funding band with an approved provider/assessment organisation.

Funds cannot pay for wages, travel or subsidiary costs, managerial costs, work placements, traineeships, or the costs of setting up an apprenticeship programme.

Once the apprenticeship has started, monthly payments will be automatically taken from the digital account and sent to the provider. There must be enough funds in the account to cover the monthly cost of each apprenticeship that has been chosen.

Incentives

From 1 August 2020 to 31 January 2021, the government will pay employers in England £2,000 for each new apprentice they hire aged under 25, and £1,500 for each new apprentice they hire aged 25 and over.

These payments are in addition to the existing £1,000 payment, the government already provides for new 16-18 year old apprentices and those aged under 25 with an Education, Health and Care Plan (where applicable). payments are made 3 and 12 months into the apprenticeship.

If a small employer (those with fewer than 50 employees) takes on a 16-18 year old apprentice, they will be exempt from paying the 10% co-investment. The training costs will be fully covered by the government.