Apprenticeship Levy Explained  

Government is very clear on its definition of an apprenticeship and this is important when it comes to understanding what the Apprenticeship Levy is about and what it can be used for.

• An apprenticeship is a job with an accompanying skills development programme including workplace learning, formal off the job training and end point assessment.
  
  
• Apprentices will gain technical knowledge, practical experience and wider skills they need for their immediate and future careers through a range of learning and the ooprtunity to practise new skills in a real work environment. 
  
  
• Apprentices must be an employee on the first day of their apprenticeship and be paid at least a wage consistent with the law for the time they are in work and in off the job training. 
  
  
• The apprenticeship must last at least one year or more ifspecified in the apprenticeship Standard or Framework. 
  
  

It is a requirement of the Apprenticeships, Skills, Children and Learning Act 2009 that the employer must have an apprenticeship agreement with the apprentice.  This can be a contract of employment but it must include specific information setting out how the employer, the provider and the apprentice will support the successful achievement of the apprenticeship.  

• The Levy applies to all employers operating in the UK, with a payroll bill over £3m each year.
  
  
• The Levy is 0.5% of an employer’s payroll bill, paid through PAYE.
  
  
• The payroll bill covers all employees across the whole of the UK including Scotland, Wales and Northern Ireland.
  
  
• 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.  Although earnings below the secondary threshold are not counted when calculating an employer’s NICs, they are included for the purposes of calculating the amount of levy the employer needs to pay.
  
  
• The payroll bill (earnings) includes any remuneration or profit coming from employment, such as wages, bonuses, commissions and pension contributions on which NICs are paid.  Levy is not charged on other payments such as benefits in kind, subject to Class 1A NICs. 
  
  
• The Levy applies to ‘groups’ of companies but not franchises. 
  
  
• The Levy payment is allowable for Corporation Tax.
  
  
• There is a time limit of 24 months within which contributions can be spent.
  
  
• The Levy can only be used to pay for the training and assessment of apprentices in England.
  
  
• An indicative online tool is available to employers which helps to estimate levy contributions, plan training requirements and estimate financial spending.
   

• The Levy is paid on the entire payroll bill at a rate of 0.5%.  However, there is an allowance of £15,000 which means the levy is only payable on payroll bills over £3m (because 0.5% x £3m = £15,000).  This operates on a monthly basis and accumulate throughout the year; this equates to £1,250 per month.
  
  
• An unused allowance can be carried from one month to the next.  For example, if the Levy liability in a month is less than the monthly allowance, no Levy will be payable that month and the balance will be carried forward to the next month.
  
  
• Where there is unused allowance in a month but the Levy was paid previously in the tax year, a credit can be obtained which can be used to offset against other PAYE liabilities.  The credit will also reduce the amount of Levy paid. 
  
  
• Where employers are connected in a group, only one £15,000 allowance will be applicable.  In such cases, the group of employers must decide what proportion of the allowance each employer is entitled to at the beginning of the tax year and this will be fixed for that tax year.  The agreed amount will then need to be applied by each employer to its own Levy calculations.  If a correction is necessary because the total amount of the Levy allowance claimed across the group exceeds £15,000, each employer in the group will then calculate what they have to pay through the same processes but using only their portion of the £15,000 allowance.  The definition of connected companies and charities is based on the definition used with the Employment Allowance (www.gov.uk/government/publications/employment-allowance-more-detailed-guidance).
  
  
• Where an employer has multiple PAYE schemes and does not use the full £15,000 allowance, it is possible to offset the unused amount against one of the other schemes once the tax year has ended.

• The Levy came into practice on the 6th April 2017 and can only be used for payments for new starts after this date.
  
  
• Existing apprentices who started before ^t May 2017 have continued under the financial arrangements agreed at the outset of their apprenticeships and will not be affected by the Levy.
  
  
• The new system for funding apprenticeships came into effect from 1 May 2017 and any apprenticeships started after this date will be funded according to the new rules. 

• HMRC sets out the rules and they collect the Levy.
  
  
• The Levy is collected on a monthly basis, based on ‘live’ HMRC payroll data.
  
  
• If an employer is due to pay the Levy, this is calculated, declared and included in the usual PAYE payment to HMRC the following month alongside tax and NICs. 
  
  
• If an employer is due to pay the Levy, this is declared and included in the usual PAYE payment to HMRC by the 19^th (or 22^nd if done electronically) of the following month. 
  
  
• The employer must only add current PAYE schemes to the digital account and is responsible for controlling users associated with and allowed to access the account.  The employer is responsible for recording the required details of the apprenticeship in the account; the provider can be permitted to do this but the employer must authorise the apprentice details in order to enable payments to be made.  Only the employer can confirm the spending of funds from the digital account; this cannot be delegated to the provider. 
  
  

• Employers who pay the Levy access funding for apprenticeships in England through a digital Apprenticeship Service (ASS) account.  Separate arrangements will be in place in Scotland, Wales and Northern Ireland and are the subject of ongoing discussion with the devolved nations.
  
  
• Employers can register for their Apprenticeship Service accounts by visiting https://www.gov.uk/guidance/manage-apprenticeship-funds
  
  
• Once registered, the employer needs to verify its PAYE scheme(s) and link them to its account.  It is possible to use more than one account if the employer prefers to keep schemes separate.
  
  
• A group of companies connected for the purposes of paying the levy are able to collect their funds together into one digital account.  This is done by registering to have PAYE schemes attached to a single digital account.  Employers that are not connected will not be able to pool funds in a digital account. 
  
  
• The ASS is be used to pay for the training and assessment of new apprentices with Levy-paying employers.
  
  
• The amount entering the ASS account is the amount the employer has available to spend on apprenticeship training in England. 
  
  
• In order to calculate how much the employer has to spend through the English system, Government use data already held about the home addresses of employees to work out what proportion of the pay bill is paid to employees living in England. Employers can update their employees’ addresses as part of their Real Time Information returns. 
  
  
• The training provider is be paid 80% of the price of the training in equal monthly instalments according to the planned duration of the apprenticeship.  The remaining balance will be paid when the apprentice has undertaken all the mandatory elements of the framework or taken the end-point assessment.  The deductions from the employer’s digital account will mirror these payments where funds are available. 
  
  
• Funds automatically expire 24 months after entering the digital account unless they are spent on apprenticeship training.  This also applies to any top-ups in the digital account.  The account works on a first-in, first-out basis through either payment or expiry meaning that payments taken from the digital account will automatically use the oldest contributions first in order to minimise the amount of expired funds.  Employers will be advised in good time when funds are due to expire. 
  
  
• The ASS is available to all employers, regardless of whether they pay the Levy, to pay for training and assessment for apprenticeships by 2020. 
  
  
• From 2018 Levy paying employers are now able to transfer up to 10% of the annual funds entering their digital account to other employers on the system such as those in their supply chain or sector and ATAs.  Further work on developing proposals for this is ongoing. 
   

• Employers are able to get out more than they pay in to the Levy. The government applied a 10% top-up to monthly funds entering Levy-paying employers’ digital accounts, for apprenticeship training in England. 
  
  

• The funds in the employer’s digital account can be used for apprenticeship training and end point assessment for its own employees up to the limit of the funding band. 
  
  This includes:
  
  
• off-the-job training
• planned on programme assessment and end-point assessment and the costs associated with external quality assurance and certification
• e-learning
• registration, materials, examination and certification where part of the apprenticeship programme
• administration directly linked to the training, education and end-point assessment
• funding to retake qualifications provided additional learning takes place
• accommodation costs for residential modules where this is a requirement for all apprentices
• participation in skills competitions directly contributing to the achievement of the apprenticeship standard as agreed between the employer and the provider.
  
  
• To be eligible for funding, apprentices must (including but not limited to) have the right to work in England, spend at least 50% of their working hours in England and work for the employer or a connected company as defined by HMRC.
  
  
• Levy funds can be used to fund an apprentice to undertake an apprenticeship at the same or a lower level than a qualification they already hold if the individual will acquire substantive new skills and the content of the training is materially different from any prior qualification or a previous apprenticeship. 
  
  
• Levy funds cannot be used on other costs associated with the apprenticeship, including:
  
  
• management, traineeships, work placement programmes or the costs of setting up an apprenticeship programme
• enrolment, induction, prior assessment or diagnostic testing
• accommodation costs because of day-to-day work requirements
• travel costs
• wages
• personal protective clothing and safety equipment
• capital purchases
• optional training modules or education trips in excess of those required to achieve the standard or framework
• resits where no additional learning is required
• mentoring or support time by other staff
• tests or exams required to acquire licences to practice
• company induction, administration or bespoke services
• off-the-job training delivered only by distance learning; and repeating a regulated qualification already achieved. 
  
  
• In addition, Levy funds cannot be used for any part of an apprentice’s programme that duplicates provision they have received from any other source including government funds such as European Social Fund or from Jobcentre Plus.
  
  
• Funds from an employer’s digital account must not be used to pay the training and assessment costs for apprentices employed by an Apprentice Training Agency (ATA).
  
  
• Funding for apprenticeship training and assessment can only be spent with an approved training provider included on the Government’s Register of Approved Training Providers (ROATP).  The main provider will have the overall responsibility for the training and on-programme assessment conducted by themselves, their sub-contractors and end-point assessment. 
  
  
• Employers are not be expected to meet the costs of any English and Maths training requirements which will continue to be met in full by Government.
  
  
• If an apprentice leaves an employer during the course of an apprenticeship, that employee’s salary will no longer be included in the Levy calculation and the provider will no longer be able to draw down funds from the employer’s digital account to pay for the training or end point assessment for that apprentice.
  
  
• Apprentices cannot be asked to contribute financially to the direct cost of learning or use a student loan to pay for their apprenticeship.  

• The price of the apprenticeship will be agreed between the employer and provider to include the delivery of apprenticeship training towards the specific standard or framework and the cost of assessing the apprenticeship at the end of the apprenticeship.  The funds in the ASS account can be used to pay the provider up to the maximum allowed by the relevant funding band (set by Government). 
  
  
• A written agreement must be in place between the employer and provider. 
  
  
• When an agreement is reached with an approved apprenticeship provider and the apprenticeship has started, monthly payments will be automatically taken from the employer’s digital account and sent to the provider in line with the agreed payment schedule.  The new system will pay providers one month in arrears for training they report has been delivered.
  
  
• It is not necessary to have enough funds in the digital account to cover the entire cost of the training at the start.  As payments are taken from the digital account monthly, it is only necessary to have sufficient funds in the account to cover the monthly cost of the agreed apprenticeship(s).  The digital account will show the funds entering and leaving the account each month plus the funds available to spend in England.
  
  
• It is possible that the cost of an employer’s apprentice training requirements will exceed the amount of Levy paid plus the top up available in the digital account.  In such cases and once all the Levy funds have been committed, Government will provide Government support to help make up the balance of the costs to the maximum amount of funding available for the particular apprenticeship.  This will be on the basis of 10% paid by the employer and 90% by Government.  In such cases, once the decision has been made to buy apprenticeship training through the AS account:
  
  
• Funds will be taken from the ASS account each month to pay the training provider.
  
  
• Calculations will be made automatically to assess if the amount paid from the ASS account is less than 100% of the amount due that month (i.e. there are insufficient funds in the AS account to meet the costs incurred).
  
  
• Automatic calculations will be made to determine how much more needs to be paid by the employer (using the rate set for employer co-investment).
  
  
• The provider will advise of the payment arrangements for any co-investment and invoice the employer on a monthly basis.  Payment must be visible in the provider’s financial systems in order to attract the Government contribution. 
  
  
• Payments from the ASS account will be made automatically by Government.
  
  
• The provider will need to confirm that the employer has paid the necessary contribution.
  
  
• In some cases employers may pay Levy in some months and not others (e.g. employers with seasonal workers) even if the annual pay bill turns out to be less than £3m.  The PAYE system will ensure that employers pay the correct amount of Levy for the tax year and would involve an in-year repayment by allowing the employer to make a reduction in their other PAYE payments.  Employers will not be permitted to use a AS account to purchase training with funds that have been repaid or are expected to be repaid.  Employers who expect their pay bill to be less than £3m should act as non-Levy paying employers (see section 12).
  
  
• Employers should advise if payments should be stopped, e.g. if the apprentice stops their training or takes an agreed break in learning. 

• The Levy applies to employers across the UK.
  
  
• The devolved nations (Wales, Scotland and Northern Ireland) are each responsible for their own apprenticeship programmes, including how funding is spent.  The Apprenticeship Service will therefore only support the English apprenticeship system and the amount showing in the digital account will be how much an employer has available to spend on apprenticeship training in England. 
  
  
• For employers with cross-border operations and training activity, work is on-going with the Welsh, Scottish and Northern Irish Governments to consider how to address this. 
  
  
• For employers operating in one or more of the devolved nations including England, a calculation will be made based on data that is already held by Government about the home address of the employers’ employees.  This data will be used to work out what proportion of the pay bill is paid to employees living in England.  

• Employers already in scope to CITB and ECITB also need to pay the Apprenticeship Levy. CITB and ECITB will be consulting their employers on potential changes to their existing Levy arrangements imminently.

Further information is available:

• https://www.gov.uk/government/publications/apprenticeship-funding-from-may-2017
  
  
• https://www.gov.uk/government/publications/apprenticeship-levy-how-it-will-work
  
  
• https://estimate-my-apprenticeship-funding.sfa.bis.gov.uk/
  
  
• https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance