APPRENTICESHIP LEVY EXPLAINED - How to Pay for an Apprentice

Posted by Jenny Tong |   19th November 2018

APPRENTICESHIP LEVY EXPLAINED - How to Pay for an Apprentice

When you’re running a business it always seems there’s too much to do, not enough time to do it in, and not enough people to help you. Skilled workers are at a premium, and even the most highly skilled new hires often need a considerable amount of time and training to get up to speed on your way of doing things.

As a result, a lot of businesses are now wise to the fact they can gain a valuable new member of the team with relative ease, and very little expense through an apprenticeship, and invest that same training time in a completely blank slate. Someone you can nurture and raise in your way of thinking, operating, and working. An apprentice can swiftly become a highly valuable member of your team who, in time, will become as highly skilled as anyone you might hire, and in the interim will cost you considerably less in terms of wages.

It’s important to remember though that an apprentice is not an unpaid intern. So, while you won’t pay them nearly as much as you would someone with several years of experience, you still have to pay them. That’s money going out to cover an employee who doesn’t yet know how to do the job and will need considerable time and effort spent to teach them everything they need to know.

Enter the Apprenticeship Levy, a government-funded scheme that is enabling employers to quickly and easily access and pay for apprenticeship training online.

If you’re a levy-paying employer taking on an apprentice is not only great for the development of your team, it’s a solid financial move, allowing you to reclaim funds that would otherwise go to another employer who is offering apprenticeship training.

Already know everything you need to about how the levy works? Click here to skip to our breakdown of how best to spend your funds…

“Employers taking advantage of the levy are reporting big increases in productivity and staff retention. Demonstrating a willingness to invest in your team through continued development and training improves morale, ensures staff are happier in their roles, and reduces staff turnover and the need for recruitment.”

Ian Webber, Managing Director, Intraining

The Apprenticeship Levy Explained...

Since April 2017 the government has been holding all large businesses in the UK accountable for shouldering the responsibilities that come with an ever-increasing number of apprentices in the workplace.

The Apprenticeship Levy was brought in as a solution to this, aimed at raising £3 billion a year between 2017 and 2020 to meet funding targets for 3 million highly skilled new apprentices.

It’s an extremely positive piece of legislation, both for apprentices and business owners, but there are various elements and it can be tricky to fully understand how it works.
To help you out, we’ve broken it down into the most important elements you need to understand:

Who Is The Apprenticeship Levy Aimed At?
While the apprenticeship levy has been set for all businesses across the UK at a rate of 0.5% and is payable along with National Insurance and tax through the PAYE system, it is only applied to businesses who have an annual wage bill over £3 million. So the levy is aimed at larger businesses with higher turnover. Those businesses paying it will also receive £15,000 per year from the government to help offset the cost of the levy. This is paid in instalments on a monthly basis, at £1,250 per month.

As an example, suppose an employer has 250 members of staff, each of whom earns £20,000, giving them an annual wage bill of £5 million. The levy would be 0.5% of this (£25,000), less the £15,000 they’ll receive from the government, leaving them with £10,000 to pay for the levy.

A business’ wage bill is defined as the total amount paid to all employees and doesn’t include additional payments for benefits in kind. Given the high level an organisation's annual wage bill needs to be before they are required to pay the levy, only around 2% of businesses will need to pay it.

How Employers Can Reclaim Their Money
Employers based in England are able to reclaim the contribution they make to the levy in the form of online digital vouchers. These vouchers can then be redeemed and used to cover the costs of training apprentices for the business. In other words, the government takes a levy to cover the costs of training apprentices, but if you’re willing to take responsibility for training an apprentice of your own, they will give you the money back.

The scheme has been designed in this way specifically to encourage employers to take on more apprentices and ensure they are well trained. Not only that, you can actually reclaim more than you have paid out for the levy, as employers paying the levy also receive an extra 10% ‘top-up’, which can be spent on training. This means that for every £1 spent on the levy, you can reclaim £1.10. As a final incentive, any funds remaining in an employers’ digital account expire after 24 months - this is to encourage businesses to actually spend the money on training!

Regional Variations on the Levy
While it is currently only English employers who will receive their funding via a digital account, it is estimated that around £0.5 billion in funds raised through the levy will then be distributed to local governments in Wales, Scotland, and Northern Ireland. Once there, it will be up to legislatures to decide how that money will be allocated. For employers with offices in multiple nations, they will have an equal proportion of funding available to spend in England as they have staff employed in England.

For example, if 50% of their wage bill goes to staff working in England, the company will receive 50% of payments or their levy through their digital account.

How to Use Your Apprenticeship Funding

All payments to the levy will be processed through the online Apprenticeship Service, enabling you to digitally manage the funds you have for apprenticeship training in your virtual account. The online system will also allow you to see the balance on your account, and make payments to government-sponsored apprenticeship providers. Once you’re set up with an online account you’ll be able to work with apprenticeship and training providers, like Intraining, to devise the perfect programme for your business. You can use your levy funds to cover the costs of End Point Assessments, however, registration and certification for non-mandatory qualifications aren’t covered.

Registering for the Online Service
If your business pays the levy you can create an online apprenticeship service account immediately and use it to:

  • Receive your levy funds to spend on training for apprentices.
  • Manage your apprenticeships.
  • Make payments to training providers.
  • Pause or stop payments to training providers.

Businesses that don’t pay the levy will be unable to access the online apprenticeship service and use it to pay for training and assessment of apprentices until summer 2019 at the earliest. The exception to this is if you’re the recipient of funds being transferred from a levy-paying employer.

What Can You Spend Your Apprentice Service Funds On?
The funds in your online account can only be used to cover the costs of training an apprentice and any assessments they need. Apprentices must spend at least 50% of their time working in England in order to qualify, and you will only be able to claim as much as the funding band maximum allows for that apprenticeship. If your costs for training and assessment exceed the funding band maximum, your business will need to cover the remaining expenses with additional funds.

Levy funds can only be used for training and assessment costs, and cannot be used to cover other expenses associated with having an apprentice, including wages, travel expenses, statutory licences to practice, work placement programmes, subsidiary costs, and expenses associated with setting up of an apprenticeship programme.

Sharing Funds with another Employer
Groups of business who pay the levy together are able to set up a shared, single apprenticeship account, allowing them to pool their funds. Levy-paying employers are now able to transfer their funds to other employers via the apprenticeship service. These transfers can be made to any business, including smaller organisations down their supply chain, as well as apprenticeship training agencies. While levy-paying employers will need to agree upon the individual apprenticeships they will be funding in order to transfer funds, this only needs to be done with the business who will be receiving funds.

Any employer receiving funds will be able to use them only to cover the costs of training and assessment, with the exception of those for apprenticeship frameworks. The only ‘catch’ here is ‘state aid’ rules apply when you are receiving money from other businesses. As a result, 10% of any funds received via transfer from another will be counted as state aid.

To find out more about how Intraining can help you with your apprenticeship levy, call us on 0330 123 1300 or fill out the below form on our Contact Us page to receive a call back from one of our advisors.

Have You Yet To Spend Your Apprenticeship Levy?
With a 24 month cap on how long you have to spend your Apprenticeship Levy pot, and about a third of businesses yet to invest their funds, it seems a lot of companies are lacking inspiration when it comes to spending their levy funds.

If you’re still unsure whether it’s worth investing your levy pot and exactly how to spend your funding, there are a few key things you should consider.

Quality Training Programmes
The quality of training received on an apprenticeship course is as high as any other training you might arrange for your workers, and apprenticeship training isn’t only designed for young people as they first enter the workplace. They are also an incredibly effective way of upskilling your existing workforce and providing them with additional training, and introducing them to new areas.

Plugging The Skills Gap
With Brexit rapidly approaching we will soon be facing a skills gap within the UK workforce. By taking advantage of the levy you have the opportunity to foresee the skills you will need in the future, and plan your training accordingly. By using a highly experienced apprenticeship training service like Intraining, you can ensure the skills you gain training for is perfectly fitted for your purpose and business.

Looking For A New Apprentice?

If you’re a levy-paying employer, we have the expertise and resources to help you utilise your funds in the best possible way, enabling you to upskill existing staff and recruit new apprentices. And if you’re not paying the levy, we can still help you upskill your team and find the best new apprentice possible. We’ve been in the businesses of education for over a hundred years and work with thousands of companies annually to help them recruit and develop their workforces, through apprenticeship recruitment and training programmes.

To learn more about creating apprenticeships, or to find the perfect new apprentice for your business, get in touch today - we’re happy to offer expert advice on the best apprenticeship programme for your business.

Contact Intraining Today

By Phone: 0330 123 1300 

Or Request A Call Back