Apprentice Levy: Changes Afoot?

Approximately 25% of vocational learning and training in the UK is currently funded through the Apprentice Levy, so what exactly is the Apprentice Levy and what is the new government proposing to replace it with?

The Apprentice Levy

Currently the levy is raised against those companies, or groups of companies, who have an annual payroll in excess of £3m. The levy is charged at 0.5% of the amount above the £3m threshold and is paid to HMRC as part of the monthly PAYE return. It must also be noted that companies approaching the £3M mark should also pay the levy and claim a rebate at the end of the tax year if they have not crossed the threshold. The money raised by the levy is then made available to smaller businesses to invest in their workforce.

The levy was introduced in April 2017 and the parameters have not changed over the intervening years. It was set up to encourage 600,000 new apprenticeships each year. The average has been approximately half that number, with somewhere in the region of £3.3 billion of funding unused. A second area of concern has arisen in where the funding has been spent. It was envisaged that most of the funding would be spent on entry-level workers. In reality, a large amount is going towards higher-level and degree type apprenticeships.

New government proposal

The new government plans to turn the apprenticeship scheme into a growth and skills levy, allowing businesses to use 50% of their contributions on non-apprenticeship training. Taking this one step further, at a cost of £1.6 billion, would see apprenticeships for 16–19 year olds fully funded by the Department for Education (DfE) as we see under the current system with school and college peers.

To pay for the increase in costs, it has been suggested that a grading system be introduced in both the way the levy is raised and to how the funds can be spent. For example, the current rate of 0.5% can be charged against companies with a payroll bill more than £1m rising to 2% for those over £3m. This would see an appreciable increase in funds going someway to meeting the cost of the government’s 50-50 model. With the DfE funding entry level apprenticeships, companies would be able to use 50% of their fund to finance degree apprenticeships for over 25’s and the remainder for short course provisions for all employees.

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Disclaimer - All information in this post was correct at time of writing.