In spring 2017 the way the government funds apprenticeships in England is changing. Some employers will be required to contribute to a new apprenticeship levy, and there will be changes to the funding for apprenticeship training for all employers.

What is the Apprenticeship Levy?

The apprenticeship levy is a new tax on businesses that will be introduced from April 2017 to help support the government’s target to fund three million, high quality, new apprenticeships by 2020. The levy will be applied to all employers, both public and private, in the UK who have a payroll bill of £3m or more and will replace the current apprenticeship funding model in place by the government.

The levy is part of the overall apprenticeship reform by the government, where employers are being put in the driver’s seat not only with the creation of the new standards through the Trailblazer groups but also in control of apprenticeship funding enabling them to select the training that best meets their skills needs and will drive up the quality of apprenticeships.

The levy will come into effect in April 2017. Employers included in the levy should have their first levy payments taken then. Employers will be able to access the new online Digital Apprenticeship Services and use the portal to find accredited training providers and pay for training with their digital vouchers.  Those who have not contributed to the levy will still be able to use the Digital Apprenticeship Service to find accredited training providers but will have a different funding process to follow which will be explained further in one of the questions.

All UK employers whose payroll bill is £3 million or more will be liable to pay the Apprenticeship Levy.  The levy will apply to all sectors, including those already covered by statutory levy arrangements.

The levy rate is set at 0.5% of your pay bill and will be collected monthly via PAYE. There will be a £15,000 fixed annual allowance to offset against their levy payments.


Levy Paying Employer Non-Levy Paying Employer
Employer of 250 employees, each with a gross salary of £20,000 Employer of 100 employees, each with a gross salary of £20,000
Pay bill: 250 x £20,000 = £5,000,000 Pay bill: 100 x £20,000 = £2,000,000
Levy sum: 0.5% x £5,000,000 = £25,000 Levy sum: 0.5% x £2,000,000 = £10,000
Allowance: £25,000 – £15,000 = £10,000 annual levy payment Allowance: £10,000 – £15,000 = £0 annual levy payment

The government will apply a 10% top-up to each company’s monthly funds entering, levy paying, employers digital accounts, for apprenticeship training in England.  From April 2017, all funds entering accounts will be increased so every £1 will be increased to £1.10 in value.

The levy will be collected automatically through Pay As You Earn (PAYE) alongside income tax and National Insurance.

You will have access to your company’s digital voucher scheme through the Digital Apprenticeship Service (DAS). You will be able to use this system to pay for apprenticeship training and keep track of all of your funds entering and leaving the system. The DAS system will also allow you to see all approved training providers or providers and all the qualifications they deliver so you can be in full control of the selection process. Once you select your training provider or provider you will negotiate the price of training and use the voucher system to make monthly payments to them.

Levy funds will expire in 18 months after they enter your digital account unless you spend them on apprenticeship training. Money is spent when it leaves your digital account as a payment to a training provider or provider. The account will work on a first-in, first-out basis, so when you make a payment it will automatically use the funds that entered into your account first.

The levy funds are available to spend only on apprenticeship training. This means employers can use it to support recruiting new apprentices into their company or for training existing staff members. All training needs to meet approved standards or framework and the individual meets the apprentice eligibility criteria.

The levy can only be used for apprenticeship starts as of the 1st of May 2017 and not any that had start dates before that. Those that started before will continue with the terms and condition in place as of their start date.

Companies who spend more then what is allocated to them by the levy will be required to pay for the cost of the apprenticeship in a co-investment model where the government will pay 90% of the cost of the apprenticeship training and your company will be responsible to pay the provider directly for the rest of the 10% of the negotiated price of the training.

If you do not pay the levy, you won’t need to use the Digital Apprenticeship Service to pay for apprenticeship training and assessment until at least 2018. You will have access to the system to be able to see all the approved training providers or providers and all the qualifications that they deliver but will not be able to pay for training through this system.

The current proposal is that the government will pay 90% towards the cost of training and assessment, and employers pay the remaining 10% directly to the training provider or provider. This is being called the co-investment model of funding. The government will confirm the co-investment rate in October 2016.

All existing and new apprenticeship frameworks and standards will be placed within a funding band. The upper limit of each funding band will cap the maximum amount of digital funds an employer who pays the levy can use towards an individual apprenticeship. The upper limit of the funding bands will also cap the maximum price that government will ‘co-invest’ towards, where an employer does not pay the levy or has insufficient digital funds and is eligible for extra support. It will be up to employers to negotiate prices with providers, within these funding limits.

The same funding bands will apply to all employers paying for apprenticeship training. The table below shows the proposed 15 funding bands. The steps between bands are smaller at the bottom of the range as this is where the majority of apprenticeships are currently concentrated.

Funding Band Band Upper Limit
1 £1,500
2 £2,000
3 £2,500
4 £3,000
5 £3,500
6 £4,000
7 £5,000
8 £6,000
9 £9,000
10 £12,000
11 £15,000
12 £18,000
13 £21,000
14 £24,000
15 £27,000

When you take on an apprentice who is aged between 16 and 18 at the start of their apprenticeship, there is a proposal that you will receive a payment to help meet the extra costs of employing them. This will be paid to you through the training provider.

The current proposal is that the government will pay an extra £1,000 to both the employer and provider for taking on a 16 to 18-year-old apprentice.  For those companies that have less than 50 employees the government is proposing to contribute 100% to support taking on a 16 to 18-year-old apprentice. We are hoping this will be confirmed in October 2016.

To help meet extra costs, you will receive the same payment as you do when you recruit a 16- to 18-year-old apprentice, if you recruit:

  • an apprentice who is aged between 19 and 24 and who has an education, 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), or other learning difficulties or disabilities, the government will make a payment directly to the training provider to help them with the extra costs of supporting the apprentice’s learning.

The current proposal is that training providers could claim up to an additional £150 each month these apprentices. We are hoping to have this confirmed in October 2016.

As the only official further education college on the island delivering the widest range of apprenticeships, the Apprenticeship Team has been keeping a close eye on all the up and coming changes to do with the apprenticeship reform. This puts us in a great position to advise employers on how best to implement and manage their apprenticeship programme.

For employers who are new to apprenticeships we can take care of everything from the advertisement and recruitment of suitable candidates, to funding arrangements and provision of all necessary training.

For employers with an existing apprenticeship programme we can advise you on how to keep ahead of the changing standards and funding models.

Our friendly team of apprenticeship experts offer a free Training Needs Analysis service to help employers like you prepare for the Apprenticeship levy. We will help and support you every step of the way. Just get in touch.

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