The Apprenticeship Levy is a monthly 0.5% tax that employers must pay if they have an annual pay bill of over £3 million. Employers can use these funds for apprenticeship training.
The Levy was created to improve the quality of apprenticeships and encourage more employers to take on apprentices. The Levy can only be used for the training and assessment of apprentices, salaries cannot be paid from your Levy account. Any exams that are not part of the Apprenticeship Standard cannot be paid for from the Levy account either.
How does the Apprenticeship Levy work?
The Levy is funded by both private companies and government entities with annual payrolls over £3 million per year. Eligible employers pay 0.5% of their pay bill through PAYE.
There is a £15,000 allowance to offset employers’ levy payment. This is equivalent to 0.5% of £3 million so, if you are eligible, you are theoretically only paying the levy on the wage bill above £3 million.
- Annual pay bill = £3 million | Total levy = £15,000 (0.5% of 3 million) | Allowance = £15,000
Total payable = £0
- Annual pay bill = £4 million | Total levy = £20,000 (0.5% of 4 million) | Allowance = £15,000 |
Total payable = £5,000
- Annual pay bill = £8 million | Total levy = £40,000 (0.5% of 8 million) | Allowance = £15,000
Total payable = £25,000
How to utilize the Apprenticeship Levy as an employer
You can use the apprenticeship levy to fund the training and assessment costs of apprenticeship programmes for the employees. The levy can be used to cover the full cost of the apprenticeship training and assessment, up to the funding band maximum for the specific apprenticeship.
If your company is not in a position to take on a new apprentice to make use of these funds, you can use them to upskill existing employees by getting them to start an apprenticeship programme. This can help them learn new skills.
If you don’t need all the funds, you can also transfer up to 25% to other employers to support their apprenticeship training.
Note: Funds expire if not used within 24 months of the original deposit date. For example, levy funds paid in March 2021 need to be spent by March 2023. The Funding Projection Tool in your apprenticeship service account can help you see how much funding will expire each month, so you can plan to use it in advance.
Please visit the UK government website to read the full details.
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