Apprenticeship Reform Update (Feb 17)
The new Apprenticeship Funding Reforms were announced on 25th November 2015 and will come into effect from April 2017. Further updates were published in August 2016, for both Large and SME employers to support you with these changes please see our update below.
Part 1. Is for Large Employers with a pay bill of 3 million or more.
Part 2. Is for Employers who do not pay the levy but have more than 50 employees.
Part 3. Is for Employers who do not pay the levy and have less than 50 employees.
Part 4. Is general information relevant to all Employers.
Large employers will pay the apprenticeship levy if you are an employer, in any sector, with a pay bill of more than £3 million each year. 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.
The levy will be charged at a rate of 0.5% of your annual pay bill. You will have a levy allowance of £15,000 per year to offset against the levy you must pay. This means you will only pay the levy if your pay bill exceeds £3 million in a given year.
Employers will also benefit from a 10% top up to the monthly funds entering their account from the government.
You will pay the levy to HM Revenue and Customs (HMRC) through the Pay as You Earn (PAYE) process. Bonus payments are included in the levy; payment is 0.5% of your total PAYE. It is 0.5% against Gross, and per PAYE reference
Levy paying employers will be given an ‘Apprenticeship Service account to manage their apprenticeship funding and programmes, this is now live for you to register please see the link below.
Funding must be spent on the external apprenticeship training provided to that individual on an approved apprenticeship standard. It cannot be spent on anything else such as internal training (CPD) or apprentice salaries.
Levy paying employers will pay 100% of the training cost from their account; if however training costs exceeds the levy payments in your fund you will move to co-investment.
What is co-investment and how will it be applied?
Co-investment will apply to levy and non-levy paying employers
Levy paying employers who have insufficient funds in their digital account will move to this model the government will pay 90% of the training costs incurred to the upper limit of the allocated band and the employer will co-invest 10%.
NB All starts from 1st April 2019 will benefit from a reduction of co-investment of 5%. All starts pre this date will continue to be liable for 10% co-invest cost.
Can your supply chain benefit and claim from the levy my organisation pays?
During 2018 subject to final value for money assessment, government will introduce the option to transfer up to 10% of funds entering your digital account to another employer with a digital account (regulations apply) this fund can benefit SME employers helping toward their co-investment cost.
How long do employers have to claim back their levy funds on apprenticeships training?
Levy vouchers will be valid for 24 months (rolling).
Can I currently claim Government funding for apprenticeships training?
Yes - funding is currently available for apprenticeships and trailblazer apprenticeships; funding changes come in from 1 May 2017.
Calculating what you have to pay
You will pay the levy on your entire pay bill at a rate of 0.5%. However, you will have a levy allowance to
offset against this. The levy allowance is worth £15,000 for each tax year. This means the levy is only
payable on pay bills over £3 million (because 0.5% x £3 million = £15,000).
The levy allowance will operate on a monthly basis and will accumulate throughout the year. This means
you will have an allowance of £1,250 a month. Any unused allowance will be carried from one month to the
next. For example, if your levy liability in month 1 is £1,000 you will not pay the levy and your allowance in
month 2 will be £1,500.
If you have some unused allowance in a month, but paid the levy previously in the tax year, you can
receive a credit which you can use to offset against your other Pay as You Earn (PAYE) liabilities. The
credit will also reduce the amount of levy paid.
If you have multiple PAYE schemes and do not use the full £15,000 allowance, you will be able to offset the
unused amount against another one of your schemes once the tax year has ended.
Example 1: an employer who would pay the levy
An employer with an annual pay bill of £5,000,000:
levy sum: 0.5% x £5,000,000 = £25,000
subtracting levy allowance: £25,000 - £15,000 = £10,000 annual levy payment
Example 2: an employer who would not have to pay the levy
An employer with an annual pay bill of £2,000,000:
levy sum: 0.5% x £2,000,000 = £10,000
subtracting levy allowance: £10,000 - £15,000 = £0 annual levy payment
Example 3: Co- investment
An employer, who does not have enough funds in their levy pot, will co-invest 10% of either the full amount
or the remaining value of the funding required.
Employers who will not pay the levy, but have more than 50 employees will go directly into the
Co-investment model. The government will pay 90% of the training costs incurred to the upper limit of the
allocated band and the employer will co-invest 10%. It is planned the Apprenticeship account service will be
transitioned to SME employers by 2019/2020.
Employers who will not pay levy and have less than 50 employees. If you recruit a 16–18 year old, this age
group will remain fully funded for the duration of their apprenticeship training. If however you choose to
recruit an apprentice aged 19+ then you will move to the co-investment model. The government will pay
90% of the training costs incurred to the upper limit of the allocated band and the employer will co-invest
Part 4: General information:
A payment allowance of £1000 will be paid to employers who employ a 16 – 18 year old, and £1000 to the
provider for delivering their training paid at 3 and 12 months.
How much does apprenticeship training cost? It varies and is dependent on the level of the Framework
or New Standard; there are 15 bands (1 – 15) which range in value from £1,500 to £27,000.