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What is the apprenticeship levy?

On 6 April 2017 the apprenticeship levy came into effect with all UK employers with a pay bill of over £3 million per year paying the levy. The levy is set at 0.5% of the value of the employer’s pay bill above the £3 million threshold, and will be paid into an apprenticeship service

account by the employer. Funds in this account will then have to be spent on apprenticeship training and assessment with a training provider.

The Government has stated that the levy “will allow us to double investment in apprenticeships by 2020 from 2010 levels, to £2.5bn [per year]”.

 

Who will pay it?

Employers will pay the levy if they either:

  • have an annual pay bill of more than £3 million; or
  • are connected to other companies or charities which in total have an annual pay bill of over £3 million.
 

FAQs

The apprenticeship levy is charged at 0.5% of the amount of an employer’s annual pay bill above £3 million – which is the equivalent of 0.5% of the total pay bill minus an Apprenticeship Levy allowance of £15,000 per year. Connected companies or charities will pay an amount based on their combined payroll.

For example an employer with a pay bill of £3.5 million would pay £2,500 per annum into their levy. This is calculated by taking 0.5% of £0.5 million (£3.5 million minus £3 million).

 

Levy-paying employers can register an apprenticeship service account which can be used to pay for apprenticeship training and assessment. Every month as an employer pays the levy, funds will enter this account. Once apprenticeship training has started, monthly payments will be

automatically taken from the employer’s service account and sent to the training and assessment provider.

 

The Government will apply a 10% top-up to the funds that are paid by an employer for the levy, which will be added at the same time as the levy payment enters the service account.

For example, if an employer makes a levy payment of £200 per month, then the Government will top up this payment by £20.

 

The funds will expire 24 months after they enter the service account, and an employer will receive a warning prior to any funds expiring. Whenever a payment is taken from the service account, it will

automatically use funds that entered the account first to try to minimise the amount of expired funds.

After the funds in a service account expire, the employer will no longer be able to spend them on apprenticeship training and assessment.

 

In the new funding system, apprenticeship frameworks and standards will be funded in the same way:

  • Each apprenticeship framework or standard will be associated with a funding band.
  • Employers and training providers will negotiate a price for training and assessment.
  • Apprenticeship levy funds will be used to pay for the training and assessment for employers paying the levy (up to the upper limit of the funding band).
  • Employers who do not pay the levy will pay 10% of the cost of training and assessment with the government contributing the remaining 90% (up to the upper limit of the funding band).
  • Training and assessment costs above the upper limit of the funding band will be paid for separately by the employer (levy paying employers will not be able to use levy funds).
  • Additional payments may be paid to the employer and training provider depending on the characteristics of the apprentice and the type of apprenticeship.

There are obvious similarities in the new funding system with how apprenticeship standards are currently funded with the use of funding bands, although there are now more funding bands and the government contribution has changed.

 

The new apprenticeship funding system will be made up of 15 funding bands, with the upper limits of these bands ranging from £1,500 to £27,000. All existing apprenticeship frameworks and

standards have been placed within one of these funding bands, and new standards will be placed in a funding band as they become ready for use by employers.28

The upper band sets in place a maximum that the government is prepared to spend on training and assessment for that apprenticeship.

The Government has stated that one of the aims of doing this is so that employers will take this upper limit into consideration when negotiating the price of training and assessment. Employers are able to spend more than the upper limit of the funding band.

 

Hiring an apprentice can bring a variety of benefits to your business. Work-based learning brings opportunities to both new and existing employees to learn the skills and knowledge to work more effectively. This will generate more productivity, more motivation, give more job satisfaction and more loyalty.

The current government have committed to investing in 3 million new apprenticeship starts With the focus of the delivery of apprenticeships moving from frameworks to standards there will be changes on how delivery of all apprenticeships are delivered.

Ignite can help employers on the delivery of their apprenticeships and ensure that your Levy payment is being spent on affordable, quality training.