The apprenticeship levy was introduced in 2017 by the UK government as part of a plan to increase the number of apprenticeships being offered across the country.
The levy helps to fund apprenticeships of many different types and can involve both large and small or medium sized businesses.
In this article, we look at what the levy is, who needs to pay into it, who can benefit from it and how it all affects SMEs.
The apprenticeship levy explained
The apprentice levy was set up to help increase the number of apprenticeships in the UK.
If you’re a small or medium size business (having fewer than 50 employees) and an annual salary bill of less than £3 million, you are not required to pay into the UK government’s apprenticeship levy.
But bigger businesses that exceed this have the apprenticeship levy applied and this ‘ringfenced’ money rules can only be used to fund apprenticeship training – whether that’s for the company themselves or for them to donate to others.
If they do contribute, the money paid into the levy is set aside for that employer to use to pay for the training and assessing of apprentices with an approved apprenticeship training provider.
Apprenticeship levy transfers
Any levy funds that are unused after 24 months are transferred to the government and that money is essentially lost to the original employer that paid the levy.
If a large employer, who pays their apprenticeship levy, is not in a position to use the money set aside to fund apprenticeships within their own business, they can choose to transfer up to 25% of that levy to other employers to use for funding their own apprenticeships instead.
Small businesses can then apply for an apprenticeship levy donation to help with their own funding of apprenticeships.
As things stand currently, employers who are not required to pay the apprenticeship levy themselves are responsible for paying 5% of the training and assessment costs for each apprenticeship they run, with the government paying the rest, up to a specific band.
If the training and assessment costs exceed this band, the employer will need to make up the difference.
With an apprenticeship levy transfer, the recipient employer can use the funds donated by the other organisation to pay for the training and assessment of new starting apprenticeships, as long as the donor employer agrees with the type of apprenticeship being offered and the other details of how the transferred funds will be used.
The transferred amount should cover 100% of the training and assessment costs.
The funds received in a levy transfer cannot be used for any of the below purposes:
- Paying for an existing member of staff to do an apprenticeship or for current apprentices already having started the programme
- Paying the wages of an apprentice
- Paying any of the travel or accommodation costs of apprentices
- Paying for the apprentice’s PPE or safety equipment (if required by the role)
- Paying for additional training that falls outside of the apprenticeship programme
- Paying for a manager’s time
- Paying for the employer to develop original teaching materials
In order to be eligible for an apprenticeship levy transfer, both the donor employer and the employer who wants to receive the transfer must be registered on the government’s apprenticeship service portal.
Paying for the apprenticeship training provider
For small businesses that don’t pay the apprenticeship levy and haven’t had funding transferred via the levy by another organisation, the percentage of training and assessor costs that you are responsible for paying, (usually 5%) you will pay to the training provider directly, once you have agreed a payment schedule with them.
The government will pay its contribution to the training provider directly too, so you only have to manage your own payments for the portion of the cost that your business pays.
In the vast majority of cases, the cost of the training and assessment will fall within the upper limit of the banding that the government have agreed to.
This varies by apprenticeship and could be anywhere between £1,500 – £27,000. In the event that the costs do exceed the funding band limit, your small business will need to meet these and pay them directly to the training provider.
The end-point assessment of any apprenticeship has to be carried out by an independent end-point assessor, which can be organised by your training provider, and this cost should be covered by the funding band limit too. In the event that this costs more than the upper limit, the employer will be liable for any additional cost.
If you want more information on the apprenticeship levy, additional funding for small businesses offering apprenticeships or applying for a levy donation, we can help. Get in touch with our team.