While apprenticeships help hundreds of thousands of people launch and progress their careers every year, the way schemes work can feel confusing and bureaucratic. With different rules for employers of different sizes and varied funding options, it’s easy to get lost.
Apprenticeship Levy is one of these commonly confused areas: a simple way for the government to encourage, promote and fund apprenticeship training, explained in the most complex way possible.
Whether you’re a larger employer paying the levy every month or a small business wondering about apprenticeship funding, here’s what you need to know.
A tax designed to promote training and development
Established in 2017 to address widespread skill shortages and expand routes into employment, Apprenticeship Levy is a tax paid by employers with an annual wage bill of £3 million or more. According to the government, this is around 2% of all employers in the UK.
Those employers pay 0.5% of their total annual pay bill—all payments subject to Class 1 Employer NICs—into a levy fund, which can later be used by that employer to fund apprenticeship training. In England, the government will also add 10% to these investments in apprenticeships. In this way, the levy encourages larger employers to invest in apprenticeships—while also helping to fund training costs for smaller businesses.
What can Apprenticeship Levy funds be spent on?
Employers who pay Apprenticeship Levy can access an online account where they can spend from their fund. While funds can be spent on new and existing employees alike, there are some restrictions around how this money can be used.
In general, levy funds must be spent on apprenticeship training from an approved provider. Crucially, the money must go to qualifications for apprentices and those schemes must have a minimum duration of 12 months. All other costs including wages can’t be paid for using the fund.
These limitations have been met with some resistance. In October 2023, the CIPD highlighted the need to financially support other forms of training, including shorter courses and skills development. For now, though, levy funds remain restricted to longer-term apprenticeships.
What happens to unspent levy funds?
Larger employers who don’t use their levy funds within 24 months will ultimately lose those funds. As a result, it’s always important to keep an eye on your fund and make sure you’re using it for maximum impact across your business.
In part, these lost funds will be used to help fund apprenticeships for smaller businesses who don’t pay Apprenticeship Levy themselves. The government currently pays 95% of the cost of apprenticeships for businesses who don’t pay the levy, helping more organisations benefit from skill development and widen access to employment.
Finally, levy-payers can opt to pledge 25% of their unspent levy funds to another business. This can be an effective way to promote skills development in a given industry or geographic region.
If you have questions about funding your apprentices, don’t hesitate to get in touch!
