The Apprenticeship Levy explained

The Apprenticeship Levy, which is on the horizon, is being packaged as a real opportunity for young workers, yet is still misunderstood by many employers. A scheme that will allow for support in both apprenticeship standards training and apprenticeship frameworks, the goal is to turn the spotlight back to employer-based training.


This change represents a real boost for apprentices, existing employees and new recruits who are employed in a real job. Taking a period of 12 months and 20% of their working time, the goal of this new legislation is to make it even easier for employers to provide apprentices with the training they need to progress and add real value in the workplace.

A move away from training outside of the workplace

The Apprenticeship Levy, which is due to comes into effect in April 2017 is making big claims about its potential to train a reported 3 million apprentices by the year 2020. Intended to encourage employers to move away from the current trend where employees are typically trained outside the workplace, the Apprenticeship Levy will move the focus to on the job training. This training, which will be available via the digital system will be available in England only and the funding will be controlled via the Digital Apprenticeship Service.

Affected employers will have to invest, but will also receive an allowance

Initially, only employers who have an annual pay bill of over £3 million will be required to invest in the scheme. This means that in reality, only around 2% of UK employers are likely to be affected. Those who are affected, will need to invest at a rate of half a percent of their total wage bill, but they will have this figure reduced by a government levy allowance of £15,000. A scheme that will be based around Government approved training providers and post apprenticeship vacancies, will require affected employers to start contributing from May 2017.

A demonstration of commitment to invest in the workforce

A demonstration by the government to show their commitment to improving the job chances of the young in particular, the focus of the Apprenticeship Levy is on the development of vocational skills and the increased availability of apprenticeships across the board. The intention is that the scheme will give employers more of a central role in the training that their employees receive. In addition, considerable focus has been placed on the poorest areas of the country as well as people who have been in care or have special educational needs.

Working out the impact of the Apprenticeship Levy on your business

Whether or not you will be affected by the levy, as we mentioned above, depends on the size of your annual pay bill. For example, if you have total payroll of £3.5 million a year, your levy sum will be £17,500. However, you will qualify for an allowance of £15,000, therefore the actual amount you will be required to pay is £2,500. Employers with total wage bills of less than £3 million will have their levy effectively cancelled out by their allowance.

What it means if your business is affected

As of May 2017, affected employers need to inform HMRC each month as to whether or not they are required to pay. Any companies who are required to pay must keep records for at least 3 years after the tax year that they relate to. The allowance of £15,000 is split equally between each month of the year and any unused part of the allowance can be carried forward to the next month, but not the next tax year. The effect is that companies who have fluctuating payrolls that are borderline at the £3m mark may find themselves having to pay the levy some months and not others. Payments for this system are made through PAYE, just like Income Tax and National Insurance Contributions and are a deductible expense with regards Corporation Tax.

What’s in it for the employer?

Affected employers will be able to claim back their contributions as digital vouchers to fund apprenticeship training for their and any connected companies or charities. If you have connected companies or charities, you need to make it clear how you plan to allocate your training fund allowance prior to using it, and then you have 2 years to use it. There is an additional bonus, which is a 10p in the pound top up that is offered by the government. Therefore, in reality, in order to qualify for £1.10 worth of training, the cost to the company is only £1. Employers can use the funds available to them to train their apprentices in new skills at either the same level or lower than they are at the moment, or to take them to a higher level in their development.

There is a handy calculation tool on the government site to help illustrate the numbers involved.

Who provides the training?

Training under the scheme will be provided by trainers who are on the government approved registered list, however it will be up to the employer to negotiate the price of the training they require. Training funding is capped by the government and training costs that exceed the amount payable by the Apprenticeship Levy need to be met by the employer.

What about employers who don’t qualify to join the scheme?

Employers who don’t fall into the realms of the apprenticeship scheme will not be obliged to use digital vouchers to pay for apprenticeship training and assessment until at least 2018. That said, these employers will still need to work with an approved training provider, negotiate the cost and stick to the upper limits agreed. What’s more, they will be required to make a contribution equivalent to 10% of the cost of the training. This arrangement is called “co-investment”.

If you’re concerned about the impact that the Apprenticeship Levy could have on your business, either now or in the future, why not get in touch? Payplus have experts on hand who can guide and help you.


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