1. The Apprenticeship Levy: What is it? and what does it mean to me?

The Apprenticeship Levy is a tax introduced by the UK government in April 2017 to fund apprenticeship training and development across the country. Here’s a breakdown of how it works:

• Who Pays the Levy?

The levy is applied to employers with an annual wage bill of over £3 million. These businesses must pay 0.5% of their wage bill into the levy, which is collected monthly through the PAYE system.

• Accessing the Levy Fund

Employers who pay the levy can access their funds through the Digital

Apprenticeship Service (DAS) account. Funds in this account are used exclusively to cover the costs of apprenticeship training and assessments for their employees.

• Expiring Funds

One key thing to note is that levy funds expire if not used within 24 months, which can be a significant incentive to start utilising the funds for apprenticeship training sooner rather than later.

2.  Non-Levy Funding for Smaller Employers

If your business has a wage bill under £3 million and doesn’t pay the levy, you can still benefit from government funding for apprenticeships through a co-investment model.

• How Non-Levy Funding Works

In this model, the government covers 95% of the apprenticeship training costs, and the employer only pays 5%. For small businesses, the government covers 100% of the training costs for apprentices aged 16-21(24 if they have an EHCP), making it even more affordable.

• Funding Access via the DAS

Non-levy-paying employers also access their funding through the DAS account. While their funds are limited to government co-investment rather than their own contributions, the system is user-friendly and allows employers to search for apprenticeship standards, training providers, and manage payments.

3.  Levy Transfers: How Larger Employers Can Help Smaller Businesses

Levy-paying employers often find they are unable to use all of their levy funds within the 24month expiration period. To prevent these funds from going to waste, they can transfer up to 50% of their annual levy funds to other employers, particularly smaller businesses or those in their supply chain.

• Benefits of Levy Transfers

Levy transfers allow larger employers to support smaller businesses, help develop skills within their industry, and create positive relationships with partner organisations. For the receiving employer, a levy transfer means that 100% of their apprenticeship training costs are covered, reducing the financial burden even further.

• How to Set Up a Levy Transfer

To initiate a levy transfer, both the transferring and receiving employer must have a DAS account. The transfer is processed through the DAS, where the sending employer can set up the transfer and the receiving employer can apply the funds toward apprenticeship training.

• Take Note

If the donating employer run out of levy funding the employer will be liable to pay 5% of the remaining contribution for the period in which the levy transfer is not covered.

4.  Under-25 National Insurance Exemption

Another financial benefit for employers who hire young apprentices is the Under-25 National Insurance exemption. This exemption is designed to reduce the cost of employing younger workers and applies to both levy and non-levy-paying employers.

• How the Under-25 Exemption Works

Employers who hire apprentices under the age of 25 do not have to pay Class 1 secondary National Insurance contributions on earnings up to the Upper

Secondary Threshold (UST), which is currently £967 per week (or £50,270 per year). This exemption significantly reduces the overall cost of hiring younger apprentices, making it even more financially attractive.

• How to Claim the Exemption

Employers can claim this exemption through their payroll system by indicating that the apprentice is under 25. This adjustment is usually processed automatically in most payroll software, as long as the apprentice’s age and status are recorded correctly.

5.  Employer Incentive

Another financial benefit for employers who hire young apprentices’ is the Employer Incentive payment. This is a £100 payment paid to the employer to help towards costs related to their employment, for example their salary, travel costs or uniform.

• Payable to employers who hire an apprentice between 16-18
• Payable to employers who apprentice is aged between 18-24 and is either a care leaver or hods an EHCP.
• Paid in 2 instalments: £500 in 90 days and £500 after one year on programme.

6.  Practical Examples: How These Funding Mechanisms Work in Real Life

Let’s look at these scenarios to illustrate how these funding options can benefit employers:

• Scenario 1: A Large Business with a £5 Million Wage Bill

This employer pays the Apprenticeship Levy and contributes £25,000 annually (0.5% of their wage bill). They use these funds to cover the full cost of apprenticeship training for new recruits. To maximise their unused levy funds, they transfer 25% to a smaller business in their supply chain, allowing that business to access free apprenticeship training. They hire and apprentice aged 17, all training costs are covered by their Levy and they receive £1000 employer incentive for their hire.

• Scenario 2: A Small Business with 30 Employees

This employer has a wage bill under £3 million and does not pay the levy. They hire a

24-year-old apprentice for an ICT role. The government covers 95% of the training costs, leaving the employer with only a 5% co-investment. Additionally, because the apprentice is under 25, the employer benefits from the National Insurance exemption, further lowering their employment costs.

• Scenario 3: A Small Business with 47 Employees

This employer has a wage bill of under £3million and does not pay the levy. They hire a 20 year-old apprentice for a Laboratory Technician role who holds an EHCP from school. The government will cover 100% of the training cost due to the apprentice age. Additionally, because the apprentice is under 25, the employer benefits from the National Insurance exemption, further lowering their employment costs and also receives a £1000 incentive from the government to help with employment costs.

7.  Tips for Employers New to Apprenticeship Funding

• Utilise the DAS for Funding and Management: Ensure that your DAS account is set up correctly to take advantage of levy or non-levy funding. This will allow you to manage payments, track training progress, and apply for levy transfers if applicable.
• Explore Levy Transfers: If you’re a levy-paying employer with surplus funds, consider reaching out to smaller businesses in your network or industry. For non-levy employers, consider requesting a levy transfer from a larger company in your sector.
• Keep Track of NI Exemptions: If you employ apprentices under 25, ensure you are applying for the Class 1 NI exemption in your payroll system to reduce additional employment costs.

Final Thoughts

Apprenticeships are a valuable investment for businesses of all sizes, and understanding how to leverage the funding structure can make them even more accessible and affordable. Whether you’re a large organisation paying the levy, a smaller business.