Everything you need to know about the Apprenticeship Levy

Last updated on

Since Chancellor Rishi Sunak announced the launch of the Kickstart Scheme last month, apprenticeships have featured in the news quite a bit. 

The reason? 

Apprenticeship and training providers are deeply concerned that the launch of the Scheme will spell the end of apprenticeships moving forward. 

Under the Kickstart Scheme, employers will be able to benefit from a £2.5 billion fund provided by the Government that will cover 100% of the National Minimum Wage (NMW) for 25 hours a week. They will also benefit from having all of the associated employer National Insurance contributions (NICs) and minimum employer pension contributions covered for a period of up to six months

The Government has already confirmed that those who take part in the Kickstart Scheme will not be eligible for apprenticeships. 

As a result, many have questioned why employers would opt for an apprentice when their training must last at least a year, with at least a fifth of it spent off the job when instead they could benefit financially from the Kickstart Scheme. 

The problem stems from the fact that many companies see the Apprenticeship Levy as a blocker to the number of young people working apprenticeships. 

Since the Levy was launched back at the start of the 2017/18 tax year, the number of apprenticeship starts has dropped by over 25%.

So, we thought it would be a good idea to look at the Apprenticeship Levy in greater detail. 

What is the Apprenticeship Levy?

The Apprenticeship Levy is a tax on employers that can be used to fund apprenticeship training. 

Who needs to pay the Apprenticeship Levy?

All employers who have a National Insurance contribution (NIC) bill of more than £3 million must pay the Apprenticeship Levy. The Levy is applicable even if the employer does not currently have apprentices.

How much Apprenticeship Levy do you pay?

The Levy itself is 0.5% of an employer’s NIC bill less the annual allowance of £15,000

What happens with funds deducted via the Apprenticeship Levy?

Funds that are deducted under the Apprenticeship Levy are held in an account under the online apprenticeship service. Employers who pay the Levy can register for this service on the Government website

HMRC will subsequently top-up an employer’s Apprenticeship Levy funds by 10%.

Once the money has been added to the Apprenticeship Levy account, employers have 24 months to use the funds. Anything that is not used is given to smaller employers who do not pay towards the Levy so that they too can gain access to training for employees. 

What about employers who do not pay Apprenticeship Levy?

Small employers gain access to any funds that are not used by employers within the 24 month period they have to do so.

Furthermore, employers who are liable to pay the Apprenticeship Levy can now transfer up to 25% of their Levy funds to other employers. 

As well as this, smaller employers who do not pay the Levy, pay just 5% of their training costs and the Government cover the rest.

What can the Apprenticeship Levy funds be used for?

The funds can be used for training costs, such as the cost of the apprenticeship and training qualifications for HMRC recognised training and apprenticeship providers.

Funds can be used on training costs such as the cost of the apprenticeship and training qualifications for HMRC recognised training and apprenticeship providers.

New apprentices from August 2020 to January 2021

From August to January, any firm that hires a young apprentice aged 16 to 24 will receive £2,000, while those that hire apprentices aged 25 and over will be paid £1,500.

PayFit and the Apprenticeship Levy? 

The Apprenticeship Levy is an automated calculation in the app and is subsequently automatically reported to HMRC via the monthly EPS. 

Interested in finding out more about how PayFit can support your company’s payroll processes? Book a demo with one of our payroll specialists today! 

PayFit blog author

PayFit blog author


You may also like...

Accountant-run payroll – why payroll outsourcing needs to change

Although some accounting firms may have a payroll department, it is not always an area where accountants hold a great deal of expertise. 

Pauline’s Payroll Problems – End of Tax Year 

In this latest episode of Pauline's Payroll Problems, we look at end of tax year pain points and explain why moving to PayFit has helped Pauline manage this difficult period in the year. 

The Budget: six important announcements

With the help of PayFit's payroll expert, Nichola, we've highlighted six of the most important announcements from the Budget.

Stay up to date with the latest payroll, HR & PayFit news...