The Apprenticeship Levy Explained

The apprenticeship levy is a funding mechanism that the Government uses to increase the quality, quantity and productivity of apprenticeships in England. It is a levy that all UK-based employers with an annual payroll in excess of £3million must pay, regardless of whether they employ apprentices or not. 

How does the apprenticeship levy work?

As mentioned, the levy is paid by all UK-based employers with an annual payroll in excess of £3million and these employers pay 0.5% directly from their payroll. 

If one of these companies has no apprentices, they still pay the levy. However, if one of these companies does have apprentices, the levy is used to pay for its apprentices’ training. 

For companies with an annual payroll that is lower than £3million, they do not pay the levy whether they have apprentices or not. If one of these companies does use apprentices, the company contributes to training costs through the co-investment fund. 

The levy is managed through HMRC. If you employ an apprentice, you must attach the PAYE scheme that you pay them through to your account. If you have several organisations, you can add more than one to your account but a single PAYE scheme cannot be split across multiple accounts.

An example of how the levy works

If an employer has an annual payroll of £5million, it would have £11,000 available for training and assessment for apprentices based in England. 

The breakdown of this employer’s calculation is as follows:

  • It pays 0.5% of its payroll in levy contributions, which is £25,000
  • It has a £15,000 allowance, leaving an employer contribution of £10,000
  • The government adds a 10% top up of £1,000, bringing the total to £11,000 

Levy paying employers agree financial terms for their apprentices’ training directly with a training provider. Payment for the full cost of training is taken from their levy fund using the Apprenticeship Service, up to the full amount available in the levy fund. 

If more funds are drawn for training than are available in the levy fund, the employer switches to the co-investment model until more funds become available in the levy fund. Any amount in their levy fund expires after 24 months, unless it is spent on apprenticeship training.

The co-investment model explained

The co-investment model is designed for employers that do not pay the levy but do use apprentices in England, as well as levy paying employers who have drawn all the funds from their levy fund.

The non-levy paying employers agree financial terms for their apprentices with a training provider and pay for this through a co-investment model with the Government. 

The co-investment model is a 95% contribution by the government and a 5% contribution by the employer for apprenticeships starting from 1 April 2019. Employers pay the training provider directly and the training provider claims funding from the Government.

For levy paying employers that draw more funds for training than are available in the levy fund, they revert to the co-investment model until sufficient funds are back in their levy fund. 

More information on the apprenticeship levy

For more information on the apprenticeship levy, including what to do if you’re an employer with operations in other parts of the UK, please read the Government’s information on apprenticeship funding.


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