The Apprenticeship Levy offers business leaders an excellent way to upskill their existing teams. Whilst there are many misconceptions around apprenticeships—who can do them, what age they should be, and what apprenticeships are available for funding—the reality is that these programmes of workplace-based learning and study are amongst some of the best ways to funnel the latest in industry best practices and in-demand innovation into your organisation.
In this guide, you’ll learn about the Apprenticeship Levy, and understand how to calculate the funding available for your business. We’ll also discuss the apprenticeship funding rules, detailing which businesses and learners are eligible for funding, and detail some of the courses available.
The Apprenticeship Levy Explained
The Apprenticeship Levy was first introduced in 2017 as an additional tax on businesses with payrolls over £3 million, with 0.5% of the excess on this wage bill collected. This allows businesses to access their Levy Allowance of £15,000, which is topped up with an additional 10% funding by the government, which is stored in a digital account for up to 24 months.
Even if organisations lack the significant wage bill for automatic enrolment on the Levy, they can still access government support—with 95% of the cost of programmes subsidised, SMEs can access the knowledge and skills provided by these courses, from sales executive training to software engineer and data analyst apprenticeship offerings.
Indeed, the Apprenticeship Levy has been successful in boosting economic growth and productivity within the UK, with a 2023 report published by the Charted Management Institute highlighting that apprentices who qualified in 2019 are anticipated to add an additional £7 billion to the economy by 2029. This is a 300% return on investment for these learners, based on the initial investment of £2 billion in their apprenticeship programmes.
The CMI’s research also illustrates that the Levy is doing an excellent job of ensuring underrepresented groups are entering into higher-level roles as a result of their learning experiences, with 71% of management apprentices being from a background where neither parent studied at university.
Apprenticeship Funding Rules
Now that you’ve had the Apprenticeship Levy explained, we’ll explore the apprenticeship funding rules that employers must follow when they’re looking to train their staff. Whilst the funding available as a result of the Levy is permissive, there are some guidelines and mandates that employers must follow to ensure that they’re complying with legislation and setting their apprentices up for success.
As we’ve already mentioned, companies with a wage bill over £3 million will be automatically enrolled into paying the Levy, with 0.5% of the excess over this amount collected by the government. There are, however, some other funding rules that business leaders and hiring managers must be aware of, including the following:
An initial assessment must be conducted and documented. This assessment ensures that learners are eligible to work as an apprentice—that is, they’re over the age of 16, a resident in England for at least 50% of their working hours, and have satisfied the requirements for success on that apprenticeship programme, such as having a functional grasp of maths and English—and can complete the end-point assessment in the time allotted for the apprenticeship before any visas run out.
Apprentices must not be receiving any other funding from the Department for Education. This includes any other funding for Further Education or Higher Education courses, whether they’re on a sandwich year or not. Learners must also not be enrolled on another apprenticeship.
The apprenticeship provider should run a skills scan. This allows the provider to understand the current knowledge, skills, and behavior of the apprentice, that they’re up to the standard necessary to succeed, and that they’re not studying something they already have experience in.
Employers should account for the “80-20” rule. While an apprenticeship is, in essence, a job with training, apprentices must be given time to study the theoretical and practical underpinnings of the apprenticeship standard they’re enrolled on. This means that 20% of their contracted hours must be spent on off-the-job training, whether that is completed in a single weekly block through a day-release agreement with the apprentice, or spread across the course of the working week.
Apprentices should be paid the correct wage. Apprentice wages are currently set at £5.28 in 2023. However, any apprentice over the age of 19 who has completed the first year of their apprenticeship must be paid in line with the minimum wage or national living wage requirements, which is £7.49 for those employees up to the age of 20, £10.18 for those up to the age of 22, and £10.42 for those aged 23 and up.
Employers, apprentices, and apprenticeship providers must develop a training plan. This training plan should be agreed upon before any training is delivered, and detail all relevant parties, the role the apprentice will be working within, the apprenticeship standard they’re enrolled on, and details of any training that will be delivered.
The government provides a full document detailing all of the apprenticeship funding rules surrounding apprenticeship funding and eligibility within England, whether businesses will be utilising the Levy to cover these programs or the 95% support offered when they don’t meet the criteria to contribute toward the Levy.
Apprenticeship Levy: Frequently Asked Questions
As an apprenticeship provider, we're in a unique position to offer answers to some of the most common questions we've received from employers on the subject of apprenticeships, the Levy, and eligibility criteria, which are detailed below. Before we look at how to calculate apprenticeship levy funding, however, let's explore some other questions we've encountered.
Does This Only Apply to Young People?
One of the biggest misconceptions surrounding apprenticeships is that these benefits are only felt if you're hiring young or early-career apprentices. This is not the case—the Levy, and apprenticeships in general, are aimed to allow contributing companies to cover the cost of training courses by drawing from the Levy, with larger organizations helping to support the training needs of smaller companies through the 0.5% tax collected on wage bills over £3mn.
These apprenticeship programs are tailored at different levels, with many high-level apprenticeship standards granting undergraduate and postgraduate degrees from university institutions around the nation—meaning that they're an excellent way for senior staff to gain in-demand knowledge and skills in areas such as team leadership. Of course, junior staff benefit too.
What Courses Are Available Through the Levy?
Another common question we receive is whether the Levy can only be utilized for low-level courses, making it ineffective for organizations looking to upskill their senior staff or leadership teams. In reality, the funding is available to train people within your business at every level of seniority, from early-career salespeople to seasoned experts.
Whether it's new starters looking to build the basic skills for career success, managers aiming to better serve their teams, or executives looking to gain new skills to drive profitability, the Levy can fund their training. For example, apprenticeship standards such as the Level 4 Sales Executive are equivalent to a Higher National Certificate (HNC), while programs such as the Operational or Departmental Manager at Level 5 are equivalent to a Higher National Diploma (HND) or foundation degree.
How Long Can I Use Levy Funds For?
When it was initially set up in 2017, the Apprenticeship Levy allowed employers to access their funding for 18 months—however, in recent years, this has increased to 24 months.
Funding for apprenticeships is determined by the available funds in an employer's digital Levy account. Once these funds are collected into this account, business leaders have the aforementioned 24 months to use them—and any unused funding can't be carried over to the next 24-month block.
August 2022 saw the introduction of a scheme whereby Levy-paying employers that won't be able to use all of their funding in the given 24-month block can donate 25% of their Levy funds to other employers.
How Does My Business Access the Apprenticeship Levy?
To access the Levy funds that your business is entitled to, there are a few steps you must follow:
1. Create an account through the government portal, and make sure you have all the necessary information to hand, including your Government Gateway login or your pay-as-you-earn (PAYE) scheme reference if your annual wage roll is less than £3 million.
2. Add your PAYE scheme and account office reference number to the site on behalf of your business. This is also known as your employer reference number (ERN). If you haven't set this up yet, you'll have to register with HMRC to receive your PAYE scheme reference number—and if you've only recently set your business up for PAYE, you'll have to submit at least one wage bill to HMRC and advise them you're planning to take on an apprentice.
3. Once you've added this information to the government portal, you'll have to accept the employer agreement with the government's Education and Skills Funding Agency (ESFA).
Now that you've completed your sign-up to access the Apprenticeship Levy funds, you'll also be able to advertise apprenticeship vacancies, find training providers, select end-point assessment organizations, and give feedback on the training that your staff has received.
How to Calculate Apprenticeship Levy Contributions
To work out what your business owes and the funding available to you for training, Pareto offers a helpful Apprenticeship Levy calculator, and HMRC also provides access to Basic PAYE Tools for employers.
The government offers some helpful guidance on how to calculate Apprenticeship Levy contributions, too:
For businesses that start paying the Levy from the first month of the tax year, business leaders should divide their allowance—which you can use Pareto's calculator to find out—by 12, and subtract this figure from the 0.5% collected from their monthly wage roll.
For organizations that will start paying part-way through the tax year, they need to understand how much of their Levy allowance has been accrued in the current tax year, divide that figure by 12, and then multiply the result by the number of months that have passed since the start of the tax year in April.
It's crucial that you keep records of any information your business has used to work out Levy contributions for at least 3 years after the end of the tax year they pertain to.
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Using the Apprenticeship Levy To Train Your Team
So, now that we've seen the Apprenticeship Levy explained, and you've been able to understand how to calculate your Apprenticeship Levy contributions, we can look more closely at why you should leverage the funding to upskill your workforce.
An Institution of Engineering and Technology (IET) report details perspectives from across all the industries they represent, highlighting that 49% of organizations are reporting a digital skills gap in their current workforce in 2023. This seems to align with the UK government's 2019 report, which is simply titled—and describes digital skills as—No Longer Optional. Similarly, the National Skills Coalition has highlighted that 92% of the 43 million online job postings they surveyed require digital skills.
These statistics show the importance of nurturing and developing internal talent. Whether it's adapting to new challenges or upskilling your workforce to prepare for planned developments and business change, the funds that the Levy provides means that employers don't have to sacrifice the bottom line to get their teams up to speed, whether they're considering enrolling staff on a technical sales course or a data analyst apprenticeship. By paying the Levy, you've already covered the cost of available courses—all you need to do as a business leader is start your claim.
Why Is Training So Important Right Now?
One of the major problems facing businesses in 2023 is the need to discover staff with the skills necessary to drive business innovation, productivity, and profitability. Across most sectors money remains tight, whilst the cost of living crisis means that candidates are less likely to move to another employer that isn't offering the potential for learning, professional development, and career mobility.
As a result, teams are failing to build the skills needed to ensure business resilience. Market success is possible within this new environment, but it will take a new set of skills to truly thrive. This is where apprenticeships come in—offering organisations the training and time they need to prepare for the future.
The Levy provides a valuable opportunity for businesses to drive innovation. By understanding how to calculate Apprenticeship Levy funding and following the apprenticeship funding rules set out above, you can confidently access the resources and wide range of courses available to enhance the skills of your workforce, with providers offering everything from sales executive to data analyst apprenticeship programmes.
Contrary to misconceptions, apprenticeships are not limited to young or early-career individuals, and can benefit staff at all levels of seniority. Leveraging the Levy enables your business to address skills gaps, develop internal talent, and provide a pathway for career progression, ultimately enhancing productivity and profitability whilst reducing staff turnover.
In today's challenging business landscape, investing in training is crucial to ensuring future success, so take advantage of the Levy to empower your workforce and meet evolving market and technological demands.
If you're interested in learning more about how the training delivered on these programmes can prepare your team for the future of work, see our guide to driving innovation with digital apprenticeships for a closer look at how to use your Levy funding wisely.
Experts In Training and Apprenticeships
At Pareto, our specialist training providers have 25 years of experience in delivering high-impact apprenticeships that prepare candidates for the world of work and enhance the skills of top executives and managers alike. If you're interested in learning more or would like the Apprenticeship Levy explained in more detail, contact us today to discuss the skill gaps you're looking to bridge and the in-demand skills you need to remain competitive.
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