How Is The Apprenticeship Levy Calculated?
This article will answer the question of how the apprenticeship levy is calculated and will suggest some of the ways you can invest this money to further the skills and competences of your team and drive greater productivity for your business.
What Is The Apprenticeship Levy?
The Apprenticeship Levy is a scheme introduced by the Conservative government in 2017 to help drive investment in skills and recruitment. As the name suggests, the primary focus was to fund more apprenticeships and vocational training courses to address the UK’s skill shortage in various key areas, such as engineering, construction trades, and IT – and also to replace European Union funding as a preliminary move before Brexit.
Who Pays The Apprenticeship Levy?
The Apprenticeship Levy is levied on all employers with an annual payroll bill over £3 million or who are connected to companies or charities for employment allowance purposes and who have a combined annual payroll bill of more than £3 million. The levy is charged at 0.5% of the employer’s total annual pay bill.
How Is The Apprenticeship Levy Calculated?
In principle, the apprenticeship levy is a universal charge on all employers. However, each employer receives an annual allowance of £15,000 to offset against the levy. This is why, in practice, only large employers with a payroll bill exceeding £3 million effectively pay the levy.
For example, if your pay bill is spot on £3 million per annum, the levy would be:
0.5% of £3,000,000 = £15,000
discount the £15,000 allowance = £0 – nothing to pay.
If your annual payroll is £4,750,000, on the other hand, your levy would be:
0.5% of £4,750,000 = £23,750
Offset your £15k allowance = £8,750
The levy is collected monthly through your employer's PAYE (pay as you earn) system, alongside your income tax and NI contributions.
Note that employers who are connected to another company will need to share this allowance with the company or charity they are connected with, which means that the individual allowance may be less than £15,000.
For schools, responsibility depends on whether the individual school is part of a local authority, independent/private, or part of a Multi-Academy Trust. However, for franchise businesses, the allowance level and liability is dependent on whether the payroll is centralised, (in which case the franchisor pays the levy), or if each franchisee operates an independent payroll, (in which case the levy is only paid if the individual franchise exceeds £3 million payroll).
Where Does The Levy Money Go?
Funds collected through the levy are stored in a digital apprenticeship service account, which employers can access to pay for approved training and apprenticeship assessment services. Funds must be used within 24 months or they ‘expire’ and are redistributed for use by other businesses.
Can You Transfer Your Apprenticeship Levy Funding?
Yes, employers that pay the apprenticeship levy have the option to transfer up to 25% of their funds to a smaller company within their supply chain or local area, thereby helping smaller employers receive further funding for their apprentices.
Who Is Eligible To Receive Apprenticeship Levy Funding?
All employers in England can access funds, whether they pay the levy or not. Non-levy-paying businesses must pay 5% of the cost of approved training, with the remaining 95% being covered by the apprenticeship levy funds. Businesses that do pay the levy will receive a 10% top-up of their monthly contributions to spend on apprenticeship training (this only applies to organisations based in England).
Invest Your Apprenticeship Levy In Management Development With Penguin Learning
Apprenticeship levy funding can be spent on management development programmes for your leaders and staff, preventing the levy from going to waste and saving money on your learning and development budget. To find out more about how we can help you use your apprenticeship levy budget to drive genuine growth and long-term value in your business, please click here to contact one of our specialists today.
Image Source: Canva
