The Levy Explained
Everything you always wanted to know about the apprenticeship levy…and more!
In April 2017 the way the government funds apprenticeships in England is changed. Some employers will be required to contribute to a new apprenticeship levy. There will also be changes to the funding for apprenticeship training for all employers.
The apprenticeship levy requires all employers operating in the UK, with a pay bill over £3 million each year, to make an investment in apprenticeships. You can benefit from this investment, by training apprentices.
You will need to pay the apprenticeship levy if you are an employer, in any sector, with a pay bill of more than £3 million each year. For the purposes of the levy, an ‘employer’ is someone who is a secondary contributor, with liability to pay Class 1 secondary National Insurance Contributions (NICs) for their employees.
Yes, if your pay bill is more than £3 million each year. If you are paying the levy, you may as well reap the benefits!
The levy will be charged at a rate of 0.5% of your annual pay bill. You will have a levy allowance of £15,000 per year to offset against the levy you must pay.
Your pay bill will be based on the total amount of earnings subject to Class 1 secondary National Insurance Contributions (NICs). Although earnings below the secondary threshold are not counted when calculating an employer’s NICs, they will be included for the purposes of calculating the amount of levy the employer needs to pay.
Earnings include any remuneration or profit coming from employment, such as wages, bonuses, commissions, and pension contributions that you pay NICs on. We will not charge the levy on other payments such as benefits in kind, subject to Class 1A NICs.
You will pay the levy on your entire pay bill at a rate of 0.5%. However, you will have a levy allowance to offset against this. The levy allowance is worth £15,000 for each tax year. This means the levy is only payable on pay bills over £3 million (because 0.5% x £3 million = £15,000).
The levy allowance will operate on a monthly basis and will accumulate throughout the year. This means you will have an allowance of £1,250 a month. Any unused allowance will be carried from one month to the next. For example, if your levy liability in month 1 is £1,000 you will not pay the levy and your allowance in month 2 will be £1,500.
If you have some unused allowance in a month, but paid the levy previously in the tax year, you can receive a credit which you can use to offset against your other Pay as You Earn (PAYE) liabilities. The credit will also reduce the amount of levy paid.
If you have multiple PAYE schemes and do not use the full £15,000 allowance, you will be able to offset the unused amount against another one of your schemes once the tax year has ended.
An employer with an annual pay bill of £5,000,000:
- levy sum: 0.5% x £5,000,000 = £25,000
- subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment
You will calculate, report and pay your levy to HMRC, through the Pay as You Earn (PAYE) process alongside tax and National Insurance Contributions (NICs).
If you have calculated that you will pay the apprenticeship levy, you will need to declare this and include it in your usual PAYE payment to HMRC by the 19th (or 22nd if you report electronically) of the following month.
Once you have paid the levy to HM Revenue and Customs (HMRC) you will be able to access funding for apprenticeships through a new digital apprenticeship service account.
You will be able to use this to pay for training and assessment for apprentices in England. The service will also help you find training providers to help you develop and deliver your apprenticeship programme.
In the first year of the levy, you will be able to use the funds in your digital account to pay for apprenticeship training and assessment for your own existing employees.
We will apply a 10% top-up to the funds you have for spending on apprenticeship training in England. We will apply the top-up monthly, at the same time the funds enter your digital account.
That means for every £1 that enters your digital account to spend in England on apprenticeship training, you get £1.10.
You will be able to register to create your account from January 2017 and you’ll be able to familiarise yourself with the service.
You will be able to see funds appear in your digital account monthly, a few working days after you have confirmed your pay bill and levy contribution to HRMC for the previous month.
This means that the first time you will see any funds in your digital account will be late May 2017.
No. Funds will expire 18 months after they enter your digital account unless you spend them on apprenticeship training. This will also apply to any top-ups in your digital account. For example, funds entering your account in September 2017 will expire in March 2019, unless you have spent them. Money is spent when it leaves your digital account as a payment to a training provider.
This will happen automatically. Your digital account will let you know in good time when any funds are due to expire so that you can arrange to spend them if you wish.
If you’re spending funds in your digital account, or accessing funding through co-investment, you can only spend it with an approved training provider. All employers will be able to access a register of approved training providers through the digital apprenticeship service.
The digital apprenticeship service will also provide details of approved assessment organisations. You will be able to choose which you want to assess your apprentice.
No. Every apprenticeship standard and framework will be placed in a funding band and is a differing amount. The funding band will set the maximum amount of funding that can be used towards training and assessment costs, over the length of each apprenticeship.
You will be asked to negotiate and agree a price with the training provider you have chosen from the approved register. This price will cover the delivery of apprenticeship training towards a specific standard or framework, and the cost of assessing the apprentice at the end of their apprenticeship.
You can use funds in your digital account to pay your training provider, up to the maximum allowed by the relevant funding band.
For example, the apprenticeship standard you have chosen is in a funding band with a limit of £6,000 and you negotiate a price of £5,000 with your training provider. We will deduct this amount from your digital account, in monthly instalments, over the life of the apprenticeship.
If you negotiate a price with a training provider that is more than the maximum allowed by the funding band, then you must pay the difference between the band maximum and the agreed price, in full. You can’t make this payment from your digital account.
You will negotiate and agree a price with the training provider you have chosen from the approved register. This price will cover the delivery of apprenticeship training towards a specific standard or framework, and the cost of assessing the apprentice at the end of their apprenticeship. You pay for this through co-investment with us. Co-investment means that you and the government each pay some of the money to the provider. There will be a rate set each year, for the proportion of the money that you need to pay and the proportion the government will pay.
Apprentices who have been accepted on to an apprenticeship before April 2017 will be funded for the full duration of the apprenticeship under the conditions that were in place at the time their apprenticeship started.
We realise this is a very confusing time for many employers and we are happy to have an informal chat or meet to support you in this process. This will be completely impartial with no obligation to take apprentices or training from us. Want to know more? Call us on 01254 354220 or email us at firstname.lastname@example.org