The apprenticeship levy: what is it and what does it mean to you?

When you look at new ways to enhance your workforce, apprenticeships are an increasingly popular way to get hands-on talent into your businesses. And, if you get it right, they’re an effective way of attracting those looking for a career and not seduced by university life.

To help businesses achieve this, the apprenticeship levy was introduced in order to create a further 3 million apprenticeships by 2020.

The levy became payable monthly through PAYE on 6th April 2017. Money paid is placed into a digital pot which the employer can then draw upon to fund the external costs of apprenticeship training.[1]

So, who’s paying for it?

Well, here’s the short answer:

  • every employer that has an annual pay bill of more than £3m; or,
  • those connected to other companies or charities for Employment Allowance which in total have an annual pay bill of more than £3 million.[2]

What does this mean you?

Your pay bill consists of all payments made to employees that are subject to employer Class 1 Secondary National Insurance Contributions (NICs), for example; wages, bonuses and commission.

Any of your ‘employees who are subject to NICs’ include those who have an application rate of 0%. This means, when calculating your pay bill you must include the earnings of:

  • employees earning below the Lower Earning Limit and the Secondary Threshold,
  • employees under the age of 21; and,
  • apprentices under the age of 25.

Your pay bill does not include the earnings of:

  • employees under the age of 16,
  • employees who are not subject to UK NICs legislation; and,
  • employees whose earnings are subject to Class 1A NICs, such as benefits in kind.[3]

How much will it cost your business?

The apprenticeship levy is charged at 0.5% of your annual pay bill, and each employer has an apprenticeship levy allowance of £15,000. This means that the amount you will need to pay is reduced by £15,000 per year.

If your business is part of a connection of companies or charities, you have £15,000 to share between you. A separate allowance is not given for each business entity.

So, to calculate how much you will be charged each month for the levy:

  • divide your apprenticeship levy allowance (the £15,000) by 12,
  • subtract this figure from 0.5% of your monthly pay bill; then,
  • what you have left is what you will be charged.


ABC Ltd’s pay bill is £6m per year. Their monthly pay bill is £500,000. They have no connected companies so they have the full £15,000 allowance to deduct.

  • £15,000 divided by 12 = £1,250 per month allowance.
  • 0.5% of £500,000 is £2,500.
  • Subtract the monthly allowance from this.
  • This leaves £1,250, which is how much they will be charged per month.

Can you benefit even if you’re not required to pay the levy?

When the levy was first announced in 2015, the (then) Chancellor George Osborne said businesses would “get back more than they put in”. However, smaller, non-levy paying businesses could also benefit from funding through a system of “co-investment”. This is where the employer pays 10% and the Government covers the other 90% of the cost of training.[4]

Unlike levy-payers, however, smaller companies face a more complex route to gaining this investment. This is because they have to negotiate contracts with training providers to secure the limited amount of funding on offer.

However, if you run a small business, don’t be put off by this. John Rogers, chief executive of Skills for Health and Justice, said: “Taking on and training apprentices is a fantastic way for organisations to shape the future of their business and it is imperative they know how to make the most of new opportunities.”[5] Apprenticeships can certainly open a world of opportunities for your business regardless of its size.

If you have any questions about the apprenticeship levy, please get in touch with your dedicated Jelf Risk Management consultant, who will be happy to help. If you would like assistance and are not currently a Jelf Risk Management client, please call 0345 040 0002 and ask for the employment law team.

[1] http://www.personneltoday.com/hr/will-apprenticeship-levy-mean-smaller-businesses-lose/

[2] http://www.personneltoday.com/hr/will-apprenticeship-levy-mean-smaller-businesses-lose/

[3] https://www.gov.uk/guidance/pay-apprenticeship-levy

[4] http://www.personneltoday.com/hr/will-apprenticeship-levy-mean-smaller-businesses-lose/

[5] http://www.publicfinance.co.uk/news/2017/03/one-three-employers-not-aware-apprenticeship-levy