Apprenticeships are an excellent way to gain practical skills and knowledge while earning a wage. However, you may wonder, “How much is the apprenticeship levy?
If you are an employer, you might have heard about the Apprenticeship Levy. It’s a government initiative encouraging businesses to invest in apprenticeships and develop a skilled workforce.
This article will explain the Apprenticeship Levy, its purpose, how it works, and what it means for your business.
What is the Apprenticeship Levy?
The Apprenticeship Levy is a tax introduced by the UK government in April 2017 to support the funding of apprenticeship training. The idea behind the levy is to increase the number of apprenticeships offered by businesses and improve the overall quality of vocational training.
Who Pays the Apprenticeship Levy?
The Apprenticeship Levy is paid by employers whose annual pay bill exceeds £3 million. The “pay bill” includes the total earnings of all employees, such as wages, bonuses, commissions, and pension contributions. If your pay bill is under £3 million, you are not required to pay the levy. However, smaller businesses may still benefit from government funding to support apprenticeship training.
How Much is the Apprenticeship Levy?
The levy is set at 0.5% of an employer’s pay bill. If your business has a pay bill of £4 million, you will pay 0.5% on the £1 million that exceeds the £3 million threshold. Here’s a breakdown:
Pay bill: £4,000,000 Levy amount (0.5% of £1,000,000): £5,000
It’s important to note that the Apprenticeship Levy is payable monthly through the PAYE (Pay As You Earn) process and other payroll taxes.
How Can Employers Use the Apprenticeship Levy?
Employers who pay the levy have access to the funds they have contributed, plus a government top-up, to spend on apprenticeship training. The government provides an additional 10% on top of the levy amount, increasing the available funds for training.
Employers can use these funds to cover the costs of training and assessing apprentices. The funds can only be used for approved apprenticeship standards or frameworks, and registered training providers must provide the training.
Suppose an employer does not use the funds within their apprenticeship service account. In that case, the government reclaimed the money after 24 months and made it available to support apprenticeship training in other businesses.
What About Smaller Businesses?
If your business has an annual pay bill under £3 million, you are not required to pay the Apprenticeship Levy. However, you can still benefit from government support for apprenticeship training.
The government offers co-investment for smaller businesses, which means they will cover 95% of the apprenticeship training costs, and the employer only needs to contribute the remaining 5%.
Summary
The Apprenticeship Levy is essential for fostering skills development in the UK workforce. If your business pays the levy, it is crucial to use the funds to invest in apprenticeship training, thereby developing a skilled and competent workforce. Taking advantage of government co-investment for smaller businesses can also bring significant benefits. Embracing the Apprenticeship Levy can create a win-win situation for employers and apprentices.