If your business is looking to invest in talent - whether by training your current team or hiring new apprentices - the apprenticeship levy is a valuable financial tool. But what exactly is it, who pays it, and how can you make the most of it?
This guide breaks down how the levy works, how it’s calculated, and how your business can benefit. Whether you're already contributing or looking to tap into available funding, here's what you need to know to take full advantage of the apprenticeship levy for your upskilling programme.What is the apprenticeship levy?
The apprenticeship levy is a tax on UK employers with an annual wage bill over £3 million or more each year.
It was introduced in April 2017 as part of the Government’s apprenticeship reforms and is used to fund apprenticeships, support business productivity, and grow quality vocational training and employment.
If you’re a large business with an annual wage bill of £3million or more, you’ll already be contributing 0.5% of that wage bill towards apprenticeship training costs. This is known as the apprenticeship levy and you have 24 months to use it before it automatically goes back to the Government.
If you’re a business with fewer than 50 employees, you could get 100% of the cost of training paid for by the Government. Small and Medium Enterprises (SMEs) can also access levy gifted funds to pay for apprenticeship training.
Learn more: What is the Apprenticeship Levy?
How is the apprenticeship levy calculated?
The apprenticeship levy is charged at 0.5% of your annual pay bill. You can use HMRC’s Basic PAYE Tools to help you work out how much you need to pay.
For the first month of the tax year:
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Divide your apprenticeship levy allowance by 12.
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Subtract this figure from 0.5% of your monthly pay bill.
For each of the following months:
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Work out your total pay bill for the year to date
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Add up your monthly levy allowances for the year to date
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Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date
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Subtract the amount of the levy you’ve paid in the year to date.
Find out more here: Pay Apprenticeship Levy
How can I spend my apprenticeship levy?
You can use these funds to upskill your team members through apprenticeships and training, recruit brand new apprentices, and use the funding to pay for End Point Assessments, the final stage that are conducted by independent organisations.
The levy can be spent on a number of elements related to apprenticeships excluding travel costs, management costs, required licenses, wages or the cost of setting up the apprenticeship.
Read our full guide – How to Spend your Apprenticeship Levy.
Remember, if you’re a large organisation that hasn’t been able to use all your funds, you can gift up to 25% for smaller businesses to access for training and apprenticeships.
What happens to unspent apprenticeship levy funds?
Unspent apprenticeship levy funds expire after 24 months if they’re not used. Once that time limit passes, the unused funds go back to the Government and can no longer be accessed by your business.
That’s why it’s important to have a plan for how to spend your levy. Whether it’s upskilling existing staff, hiring new apprentices, or even gifting up to 25% of your unused funds to smaller businesses in your supply chain or community.
Levy gifting can help you form relationships with other organisations, build your reputation as a caring brand and support your CSR agenda.
Need help arranging funding for apprenticeship recruitment? We’re here to make it simple. At Total People, we support you through every step of the process, from checking your eligibility and accessing levy funding, to matching you with the right apprentice for your business.
Whether you're new to apprenticeships or looking to make the most of your existing levy, our expert team is ready to guide you. Get in touch with us today and let’s build your future workforce together.
