Apprenticeship Levy - what it means for UK firms

As employers attempt to understand and implement the government's Apprenticeship Levy, Chris Syder looks at what exactly this means across the UK.

On 6 April 2017, the government’s compulsory levy to fund apprenticeships across the UK will take effect. The levy is to build a central ‘pot’ of money to help fund both existing apprenticeship schemes and the government’s pledge of three million new apprenticeships by 2020. 

The levy applies to all employers, in all industries, in the UK.  All employers will owe a mandatory sum equivalent to 0.5% of their total wage bill.  The levy will be reported to HMRC, and paid, through PAYE, along with income tax and National Insurance. All employers will, however, receive an offset allowance of £15,000, meaning that only employers with an annual wage bill in excess of £3m will have to pay the levy. Smaller businesses will still be affected as the way they claim funding for their own apprentices will change.

The amount of an employer's wage bill will be based on total employee earnings subject to Class 1 secondary NICs. This will mean that variable payments such as commission, bonuses and overtime, sick pay, maternity, paternity and adoption pay, as well as pension contributions, will be included in the calculation, but benefits in kind are excluded.

Also from April 2017, for training to qualify as an apprenticeship, plans must be submitted to and approved by the new Institute for Apprenticeships (“IfA”) which will make sure they meet the standards.  

As apprenticeships are a devolved matter, how the levy will be used to fund apprenticeship training in each of England, Scotland, Wales and Northern Ireland will vary. To date, the Scottish Government and Welsh and Northern Irish Assemblies are yet to decide how the levy will be used in their part of the UK. In England, a Digital Apprenticeship Service (DAS) account will be set up. Those who are liable to pay the levy for apprenticeships in England will be able to access funding through their own personal account. This funding will not fund an apprentice’s wages, which would have to be met by the contractor separately from the levy. 

Contractors below the £3m threshold who do not pay the levy will not have access to levy funds, but will have access to the DAS, through which they will make a contribution to the cost of apprenticeships and access government funding. The government will apply a 10% top up on all funds through the English system, meaning that for every £1 an employer pays into the scheme, they will receive £1.10 back to fund English apprenticeships. Funds will however expire 18 months after they have been paid into a contractor’s digital account, if they have not been spent, which means apprenticeships need to be carefully planned if funding is not to be lost.

Chris Syder is a partner at the law firm Penningtons Manches.