Levy Explained

What is the Government introduced apprenticeship levy scheme, and how can it help your business.

Key facts about the levy

1. What is the Apprenticeship Levy? The Apprenticeship Levy requires all employers operating in the UK, with a pay bill over £3 million each year, to invest in Apprenticeships (0.5% of their annual pay bill).

2. Why was the Apprenticeship Levy introduced? The Apprenticeship Levy’s objective was to improve the quality and quantity of Apprenticeships in England, by providing a sustainable workforce and bridging the skills gap affecting many industries, including tech.

3. When did the Levy come into effect?
6th April 2017

4. Does my company have to pay the Apprenticeship Levy?
The Levy is paid 0.5% from an employer’s pay bill. However, since each employer receives a £15,000 offset allowance every tax year, the majority of companies do not need to pay anything at all.
For example, a company with a payroll of £3 million would pay nil, and this is because 0.5% x £3 million = £15,000.

  • Example 1: an employer who needs to 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 does 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

5. What defines a payroll? Payroll is defined on total employee earnings subject to Class 1 secondary NICs. Earnings include any remuneration or profit coming from employment, such as wages, bonuses, commissions, and pension contributions that you pay NICs on.

Additional detailed guidance can be found here

6. How would my company pay the Apprenticeship Levy?
If you have to pay the Apprenticeship Levy, you should calculate, report and pay every month to the HMRC, through the PAYE process alongside tax and NICs.

7. What is the £15,000 allowance, and how does it work?
The £15,000 levy allowance is divided monthly so you will only pay for a given month if your liability is less than £1,250. Any unused allocation money will carry over towards the next month.
For example, if your company only used £1000 of your levy allocation money in month A, alongside not paying the Levy for that month, your allowance would also be £1,500 for month B.

8. My company is a group of connected companies. How will this be affected by the Levy? When a group of companies are connected, they can only use one £15,000 levy allowance. However, this allowance can be split towards all businesses in the group, but this must be decided and notified to HMRC before the start of the tax year, it cannot also be changed for the rest of the tax year.

9. I’m paying the Levy. What advantages does it bring to my company? Any company paying the Levy will have access to the new digital account system, which enables you to pay for training and assessment for Apprentices in England, provided as a voucher system. You are also able to search for training providers like Just IT to help deliver your Apprenticeship programme. You can register with this service here

However, digital funds and government funding cannot be used for:

  • Apprentice wages
  • Apprentice travel and subsistence costs
  • Managerial costs traineeships
  • Work placement programmes the costs of setting up an Apprenticeship programme

Your company will have up to 24 months to spend these vouchers or they will otherwise expire and cannot be used again.

10. I don’t need to pay the Apprenticeship Levy; will I have to contribute any costs?
Non-levy paying employers still have to make a small contribution towards training an Apprentice.
Any Businesses with under 50 employees won’t need to pay for anything taking on a 16-18 year -old Apprentice, with the government contributing 100% towards the total cost of training.

11. Can I use the Levy to train my existing staff?
Your Internal Workforce Development Program can be funded through the Apprenticeship Levy, provided the employee will be learning new skills/knowledge, the Apprenticeship is relevant to their role and is the most appropriate way towards progressing their career.

12. What’s next?
At Just IT we would like to help your business take advantage of the levy through upskilling and hiring talent. For information about how you can make the most of your levy, please complete the form below.

Speak to a Levy expert

We have a team of Apprenticeship Levy experts, with a wealth of knowledge around utilising the fund to make new hires and upskill existing staff.

Contact us