Apprenticeships are changing

Apprenticeship funding reform from May 2017.

From May 2017 the way the Government funds Apprenticeships in England is changing. The changes will impact all businesses, large and small, as Apprenticeships will have to be paid for either through an employer levy or co-investment scheme.

Whether you will pay the levy or not, our aim is to help you to understand what the changes mean to your business and how to maximise the benefits you will recoup from your investment. Moving forward all Apprenticeships will be placed within one of 15 funding bands, and allocated an upper limit. These will determine the maximum amount of funding that can be used towards training and assessment costs
over the duration of each Apprenticeship. The same funding bands will apply to levy payers and non levy payers.

Should you wish to speak to us about the changes to Apprenticeship funding or any other  training requirements, please contact us on 0845 155 0043 (press 4), or email

  1. The Apprenticeship levy is a new payroll charge on UK employers to fund Apprenticeships, and will be introduced in April 2017.
  2. The levy will be paid through PAYE and is set at 0.5% of your entire pay bill. However, there is an ‘allowance’ of £15,000 per tax year to offset against your levy liability. This means that you only make levy payments on your pay bill in excess of £3 million per tax year.
  3. The levy will be a monthly deduction, taken in any month where your pay bill is over £250,000. If your overall pay bill in that tax year is below £3 million, any monthly levy deductions will be reimbursed.
  4. Your pay bill will be based on the total amount of earnings subject to Class 1 secondary national insurance contributions (NICs). Although earnings below the Class 1 secondary threshold are not counted when calculating an employer’s NIC, they will be included for the purposes of calculating the amount of levy the employer needs to pay.
  5. Earnings include any remuneration or profit coming from employment of all staff (including directors), such as wages, bonuses, commissions, and pension contributions that you pay Class 1 secondary employers NICs on.
  6. The levy will not be charged on other payments such as benefits in kind and reimbursed expenses.
  7. All levy payments will be allowable for Corporation Tax.
  8. Employers in England who pay the levy and participate in Apprenticeship programmes will receive more than they pay into the levy, through a monthly 10% top-up from the Government.

All employers are in scope to pay the levy on your entire pay bill at a rate of 0.5%. However, you will have a levy allowance to offset against this. The levy allowance is worth £15,000 for each tax year. This means the levy is only payable on pay bills over £3 million (because 0.5% x £3 million = £15,000).

Example levy calculations

Example 1 - An employer who would pay the levy

  • Employer of 250 employees, with an average gross salary of £20,000
  • Pay bill: 250 x £20,000 = £5,000,000
  • Levy sum: 0.5% x £5,000,000 = £25,000
  • Minus levy allowance: £25,000 - £15,000 »» £10,000 annual levy payment

Example 2 - An employer who would not pay the levy

  • Employer of 100 employees, with an average gross salary of £20,000
  • Pay bill: 100 x £20,000 = £2,000,000
  • Levy sum: 0.5% x £2,000.000 = £10,000
  • Minus levy allowance: £10,000 - £15,000
  • £0 annual levy payment

Getting out more than you put in

The Government will apply a 10% top-up on a monthly basis to the levy funds you have for spending on Apprenticeship training, at the same time the funds enter your digital account. This means for every £1 that enters your digital account you get £1.10 to spend on Apprenticeship training.

Example - Employer pays £12,000 annually into their levy account

  • Monthly levy payment = £1,000
  • Monthly top up: 10% x £1,000 = £100
  • Monthly account increase: £1,000 + £100 = £1,100
  • £13,200 annually to spend on Apprenticeships

Paying the Levy

If you have calculated that you will pay the levy, your payroll department will calculate, report on and pay your levy to HMRC through the PAYE process alongside National Insurance and Income Tax from April 2017. Single employers with multiple PAYE schemes should add these together when making their levy calculations. Employers who are in connected ownership or control (for example groups of companies or joint ventures) will share one levy allowance.

Using your levy credits

Levy credits can be used to pay for training and assessment for Apprenticeships in England from May 2017, through an approved training provider. This does not only apply for new employees. Existing staff could be eligible for an Apprenticeship, as long as there is a need for them to develop new skills in order to progress in their career. For more information please call us on 0845 155 043 (press 4) or email Levy funds cannot be used for: wages, managerial costs, traineeships, work placement programmes, set-up costs, travel and subsidiary costs or licences to practise.

Accessing funds

You will need to register with the new Digital Apprenticeship Service (DAS) and create a digital account. Visit https://manageapprenticeships. From May 2017 you can use your digital account to access the funding to pay for Apprenticeship training and assessment.

Expiry of funds in your digital account

Funds will expire 24 months after they enter your digital account unless you spend them on Apprenticeship training. This will also apply to any top-ups in your digital account. The account will work on a first in, first out basis, so whenever a payment is taken from your digital account it will automatically use the funds that entered your account first. This will minimise the amount of expired funds.

Buying training if you don’t have enough in your digital account

Employers who pay the levy, but have either used all their funds or have an insufficient amount to fund the number of apprentices they wish to train, will be expected to make a contribution to the extra cost of training and to pay this directly to the provider. The Government will pay 90%, (up to the maximum amount of funding available for that Apprenticeship) and the employer will be expected to pay the remaining 10%. This is known as ‘co-investment’.

Directing funds in a digital account to another employer

In the first year of the levy, you will only be able to use the funds in your digital account to pay for Apprenticeship training and assessment for your own employees. The Government is aware, however, that some employers will want to use funds in their digital account to pay for Apprenticeship training of other employer’s apprentices, for example, someone in their supply chain. The Government is looking to introduce this from 2018.

Pooling funds in a levy account with other employers

If you are in a group of companies that are connected (eg. groups of companies or joint ventures), for the purposes of paying the levy, your group will be able to collect their funds together into one digital account. You can do this by registering to have multiple PAYE schemes attached to a single digital account. Employers that are not connected will not be able to pool funds in a digital account.

Employers that don’t pay the levy

Employers with a pay-bill less than £3 million per year won’t pay the levy and won’t need to use the Digital Apprenticeship Service (DAS) to pay for Apprenticeship training and assessment until at least 2018. However, from May 2017 there will be a requirement for all employers to co-invest and make a financial contribution towards the cost of Apprenticeship training and assessment. This contribution will be based on fixed Government funding bands for each Apprenticeship framework/standard. The employer will be expected to pay 10% and the Government will pay the remaining 90% of the cost (up to the maximum amount of funding available for that Apprenticeship).

Small employer co-investment waiver for 16-18 year olds

Employers with fewer than 50 people working for them will be able to train 16- 18 year old apprentices without making a contribution towards the costs of training and assessment up to the funding band maximum. Instead the government will pay 100% of the training costs for these individuals.

What happens when a price has been agreed?

After a price for the training and assessment has been agreed, you will be expected to pay your contribution towards the costs directly to the training provider. If you negotiate a price with a provider that is more than the maximum allowed by the funding band, then you must pay the difference in full. You will not get Government support towards these costs.

Employer A

(who does not pay the levy) trains a Customer Service Apprentice, which sits in band 6. The upper funding limit for training in band 6 is £4k per year, and the employer negotiates a cost of £4k with the provider.

The cost is within the funding band limit, so the £4k will be made up of an employer contribution of £400 (10%) and a Government co-investment of £3,600 (90%).

Employer B

(who does not pay the levy) trains a Workplace Pensions Administrator Apprentice, which sits in band 9. The upper funding limit for training in band 9 is £9k. The price negotiated with the training provider is £10k, so over the funding cap.

The employer will pay £900 (10%) of the £9k of training within the funding-cap limit, with a Government co-investment of £8,100 (90%). The employer is also responsible for the remaining £1k over the funding-cap limit.

Apprenticeship training started before May 2017

Apprentices who are accepted on to an Apprenticeship programme before the 1st May 2017 will be funded for the full duration of the Apprenticeship under the terms and conditions that were in place at the time the Apprenticeship started. If you subsequently begin to pay the Apprenticeship levy, you will not be able to use the funds in your digital account to pay for Apprenticeships that have already started.

Extra incentive for employing 16 to 18 year olds and 19-24 year olds with additional needs

If you take on an apprentice who is between 16 and 18 years old at the start of their Apprenticeship, you will receive a £1,000 incentive to help meet the extra costs of employing them. This will be paid to you through the training provider - half after 3 months and half after 12 months.

You will receive the same payment if you recruit:

  • an apprentice who is between 19 and 24 years old and who has an Education and Health and Care Plan provided by the local authority.
  • a 19 to 24 year old who has been in the care of the local authority

If you recruit an apprentice with additional learning needs, such as dyslexia, other learning difficulties or disabilities, the Government will make a payment directly to the training provider to help with the extra costs of supporting the apprentice’s learning.

Funding for English and maths training

Apprentices have to meet a minimum standard in both English and maths up to Level 2. If your apprentices do not already have these, they will need to undertake an English and/or maths course. The Government will pay training providers directly for the English and maths courses they deliver, so you won’t be asked to pay us for it directly.

If you do not currently take on apprentices and you will be affected by the levy, we would advise that you start to plan which apprenticeships are relevant to your business and how many apprentices your levy credits will cover, so you are in the best position to make use of your levy funds from May 2017.

If you won’t be affected by the levy but are considering taking on an apprentice for the first time, we would encourage you to contact our Skills Advisers, who will be happy to discuss this with you.

Choosing Central Sussex College

As one of the largest Apprenticeship providers in the South East, Central Sussex College manages over 700 apprentices across a diverse range of industries. Apprenticeships are proven to increase productivity, staff motivation and retention. Therefore, it makes good business sense to sign up your new and existing staff (if working or progressing into new roles) onto an appropriate Apprenticeship training programme.

We are here to help support you and help you to plan how you will spend your levy credits, manage your levy through the Government’s Digital Apprenticeship Service, and to help you maximise the benefits of your investment.

So, choose us as your Apprenticeship partner and let us arrange and deliver training and assessment for all of your apprentices. Call today to talk to one of our Skills Advisers.

If you would like further information on the levy please visit: