Apprenticeship levy missing the mark

22 May 2019

Before its introduction, much was written about this new ‘tax’ that aimed to provide funding for the government’s flagship policy. A target of three million apprenticeship places by 2020 was set but it is looking unlikely this will be met.


Samantha Mann, senior policy and research officer at the CIPP, explores who is affected by the levy and outlines the latest measures introduced by the government to stimulate interest in the programme.


In April 2017, UK employers with a pay bill in excess of £3m became subject to the apprenticeship levy. The levy of 0.5% also includes an offset of an apprenticeship levy allowance of £15,000 per year.

Whilst the levy is a UK-wide policy, skill, education and training policy is a devolved matter for each of the UK nations. This article will cover the workings of apprenticeship funding policy in England which includes the self-managed apprenticeship service account.

English percentage

The apprenticeship service account is available to employers subject to the levy charge, and from 2019 also to employers in receipt of a transfer of levy funds.

The amount of funds made available in the account is calculated by multiplying the monthly levy paid to HMRC by the proportion of the employer’s pay bill paid to their workforce in England (referred to as the English percentage), plus a 10% top up on this amount from the government. These funds are then available for spending in England.

Co-investment rate

Available for employers that don’t pay the levy or for those who do but want to invest more than is available in their levy account in any single month.

Co-investment ensures that the employer and government share the cost of apprenticeship training, the theory being that the employer making a cash contribution will increase their engagement and thus increase the quality of apprenticeship training.

The ratio was initially 10% from the employer and 90% from government. This ratio has increased from the beginning of April in a bid to further incentivise employer take-up and now sees only 5% needed from the employer with government funding the remaining 95% for all new apprenticeship starts.

Apprenticeships that began before 1 April 2019 will continue to be funded with the original 10:90 ratio.

The employer contribution is paid directly to the training provider.

‘First in first out’ - expiry of funds

Funds sitting within the account will expire 24 months after they first appear and as May 2017 was the first month in which funds began to appear into apprenticeship service accounts as from May 2019, we will see those first funds begin to expire.

Only the difference between what came in and what was spent in that month, assuming that there is a balance remaining, will expire. Where the employer spent the same amount as was received into the account or where they paid out more than they received then no funds will expire.

Transfer of funds

Since 1 April 2019, unused levy funds can be transferred from the apprenticeship service account to another employer up to the maximum of 25% of the annual value of funds entering the apprenticeship service account.

The amount of the transfer should be able to cover all eligible training and assessment costs (to the funding band maximum) because the transfer agreement will see the employer committing to fund the apprenticeship in its entirety - so the employer will have to ensure that sufficient funds are available to cover these costs over the relevant years. Once committed, these payments will be made from the employer account before payments are taken to fund their own apprenticeships.

Awareness and understanding of the implications that this transfer may have under state aid rules is important as this transfer represents the amount of co-investment that would have been made had the funds had not been transferred: for example 10% for apprenticeship starts prior to the 1 April and 5% for apprenticeship starts from 1 April 2019.

Connected parties

When the news first broke about the introduction of the levy a ‘pay bill’ (national insurance pay) of £3m left the majority of employers breathing a huge sigh of relief due to the certain knowledge that their pay levels were too low.

However, no new policy is ever that simple and for employers connected with other companies or charities, the impact of that connection could see them needing to consider what impact that connection will have on their need to contribute 0.5% of their pay bill and whether they may be able to benefit from the apprenticeship levy allowance.

Employers in a group of linked employers will be entitled to one amount of levy allowance between them. The same ‘connected companies and charities’ rules that apply to the employment allowance apply here and they are:

  • connected companies, where a company has control over another company or where they are under the control of the same person or persons.
  • connected charities, where the same person or persons control two or more charities and those charities have similar aims and activities or where there is a group of charities.

In both of these circumstances, the levy allowance can be shared between the PAYE references or connected companies/charities at the start of the tax year.

To share the levy allowance:

  • an employer with multiple PAYE references or payrolls must decide how much levy allowance to allocate to each PAYE reference or payroll.
  • the group of connected companies or charities must decide how much levy allowance to allocate to each company or charity.
  • when the payroll parameters are entered into the payroll system at the start of the tax year, the amount of levy allowance that is allocated for that year would be entered, which can be zero.

It is for the employer(s) to ensure that the total amount of levy allowance claimed does not exceed the normal annual allowance of £15,000. When the payroll system runs the apprenticeship levy calculation, it will use the amount of annual levy allowance that has been entered for that payroll.

For maintained schools (community and voluntary controlled schools), the local authority is the employer so the earnings of all the employees are to be included in the local authority’s pay bill calculation.

Each local authority has one levy allowance amount to claim against the total pay bill.

If the school’s payroll is not run by the local authority, an arrangement must be made to ensure that value of the school’s pay bill for each tax month is communicated to whoever runs the local authority’s payroll to feed into the apprenticeship levy calculation.

With regard to voluntary-aided schools, foundation schools and academies, the governing body is the employer with access to one levy allowance.

Although the connected companies and charities rules do not apply to the public sector, multi-academy trusts are treated as a single employer. Therefore, a single levy allowance can be claimed against the total of the pay bills.

Target setting for April 2020

The target date of April 2020 was the government deadline for delivering three million apprenticeship start-ups. This is not going to be met; indeed the opposite appears to be happening. Let us hope that the measures introduced from April 2019 will provide added incentive for employers to benefit from their contributions and their hard work in ensuring the successful compliance and delivery of this latest policy.


This article was originally written for Accounting Web.