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Apprenticeship Levy

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The levy can be incredibly beneficial to businesses, providing a  source of funding to support essential training and development, while also increasing workforce engagement through apprenticeship programmes.

What is the Apprenticeship Levy?

The Apprenticeship Levy was brought in by the Government in April 2017 as a way of creating more funds to support quality apprenticeship training and encourage employers to invest in apprenticeship programmes as a way of upskilling staff. 

You begin paying the levy if you have a payroll above £3million and this will be taken at 0.5% of that payroll and then stored in a digital account which can be accessed to pay for the costs of apprentice training. This is called your apprenticeship levy allowance.

City Skills provides apprenticeship training across England and has the expertise to help you make the most out of your apprenticeship levy. Whether you’re a levy-paying employer or a small business exploring your options, our experts can work with you to understand apprenticeship funding and maximise your return on investment.

Your allowance:

  • It applies to businesses with a payroll of more than £3 million
  • The levy is charged at 0.5% of an employer’s total payroll
  • It is collected monthly through PAYE.
  • It is stored in an account for up to 24 months
  • It is used to fund apprenticeship training

Apprenticeship Levy Explained

The Apprenticeship Levy was introduced as a government scheme to fund apprenticeships. The Levy applies to employers with a payroll of more than £3 million, who must pay 0.5% of their total payroll to HMRC monthly through PAYE alongside income tax and national insurance contributions. This cost is then offset by an annual £15,000 government allowance. 

Your levy payment is then paid into an online Digital Apprenticeship Service (DAS) account (similar to online banking), which receives a 10% ‘top up’ from the Government. So as a levy-paying business, for every £10 you pay you can access an additional £1 to spend on apprenticeships.

Each apprenticeship standard has a cost band and these funds can be used to cover these costs. The funds can only be spent on apprenticeship training or End-point Assessment according to the funding rules.

After 24 months any unused levy funds expire and return to the government. This is to incentivise regular expenditure on high-quality apprenticeship training. When paying for apprenticeship training, the government will always use the oldest funds in your account first to minimise the window for fund expiry.

If you are a levy-paying employer, your DAS account can be used to:

  • Receive levy funds for you to spend on apprenticeships
  • Manage your apprentices
  • Pay your Training Provider
  • Stop or pause payments to your Training Provider
  • Transfer your levy funds to another employer

If you would like to benefit from more apprenticeship training than the funds in your account will cover, you can move to a ‘co-investment’ model. This is where you pay 5% of the costs of the additional training and assessment costs, and the Government funds the other 95%.

The apprenticeship levy can only be used within England, as apprenticeship legislation differs across the devolved nations. For this reason, apprentices funded by the levy must work at least 50% of their time within England. The amount of levy you can access is directly linked to the proportion of your employees living in England.

Non-levy paying employers can use the levy through a transfer of funds from a levy-paying employer. Employers can transfer up to 25% of their annual levy fund to another business, for example, a company in its supply chain.

If your annual pay bill is less than £3 million and you’d like to benefit from apprenticeships in your organisation, you’ll fund this through what’s called co-investment. This is where you’ll contribute 5% to the costs of training and assessing your apprentices, and the government will fund the remaining 95%.

For smaller companies with fewer than 50 employees, the government will pay all the costs for new apprentices aged 16 to 18 and those aged 19 to 24 who are leaving care or have a Local Authority and Healthcare plan.

Apprenticeship Funding for Employers

  • Employers that take on an apprentice aged 16 to 18 will receive a £1,000 government incentive to help with the costs associated with taking on a younger worker.
  • Employers that take on an apprentice aged between 19 and 24 who have previously been in care can also access a £1,000 government payment.
  • Small employers below 50 people can train apprentices aged 19 to 24 who have left care at no cost.

The co-investment option sees employers pay 5% of apprenticeship course costs, with the government contributing the remaining 95%. This means that non-levy paying companies have the option to access an apprenticeship programme by paying 5% of the cost.

If a levy paying company runs out of funding in their account, the co-investment option is available for them too.

Non-levy paying employers can use the levy through a transfer of funds from a levy-paying employer. Employers can transfer up to 25% of their annual levy fund to another business, for example, a company in its supply chain.

If your annual pay bill is less than £3 million and you’d like to benefit from apprenticeships in your organisation, you’ll fund this through what’s called co-investment. This is where you’ll contribute 5% to the costs of training and assessing your apprentices, and the government will fund the remaining 95%.

For smaller companies with fewer than 50 employees, the government will pay all the costs for new apprentices aged 16 to 18 and those aged 19 to 24 who are leaving care or have a Local Authority and Healthcare plan.

Understanding the Apprenticeship Levy Transfer Initiative

A levy transfer is where one levy paying employer agrees to transfer a proportion of their levy funds to another employer for them to use in full to train an apprentice.

‘Sending Employers’ can find ‘Receiving Employers’ who would benefit from receiving a transfer. For example, this could be:

  • A member of a company’s supply chain
  • A local business
  • A charity that is connected to a company

Levy paying employers can transfer a maximum amount of 25% of their annual funds. Known as ‘Sending Employers’, they can make transfers to as many Receiving Employers as they choose.

To take part in the scheme you will need to have a Digital Apprenticeship Account set up.

Set Up Account

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