Apprenticeship Levy

What is the Apprenticeship Levy

The Apprenticeship Levy is being replaced by the Growth and Skills Levy under the Labour party to provide greater flexibilities in Apprenticeship and skills development. Including the Foundation Apprenticeships for younger Apprentices at Level 2 and shorter duration Apprenticeships. Which was launched by Keir Starmer on the 24th September 2024 at the Labour Party Conference.

The Apprenticeship Levy

The Apprenticeship Levy was implemented at the onset of the 2017/18 tax year. Employers with an annual pay bill exceeding £3 million pay 0.5% of into their Apprenticeship Levy pot.

The levy’s primary objective is to bankroll apprenticeship training for all employers. Large Levy Paying employers can Levy transfer to smaller employers and if any Apprenticeship Levy funds are not used this is eventually paid back to the Treasury, so the Apprenticeship Levy has a use it or lose it facility. The money paid into the Levy funding pot by employers needs to be used within two years.

The levy is there to fund apprenticeship training for all employers. Smaller employers – those with a total annual pay bill of less than £3million – pay just 5% of the cost of their apprenticeship training and the Government pays the rest.

Who Can Tap into the Levy?

The levy stands as a financial backbone for apprenticeship training across the board. Smaller employers, grappling with an annual pay bill below £3 million, only foot 5% of their apprenticeship training expenses, with the government picking up the remaining tab.

Levy Transfers to SMEs have also gone through a recent change in March 2024 with greater access to help SMEs and particularly young people. The Levy reforms in March 2024 enabled large employers who pay the apprenticeship levy will be able to transfer up to 50% of their funds (which was previously 25%) to support other businesses to enable 20,000 more apprenticeships for young people and SMEs.

Apprenticeship Levy transfer changes for SMEs and Young People (March 2024)

0n 18th March 2024 new Apprenticeship Levy reforms were announced and rolled out from the 1st April 2024. Under the new plans, large employers who pay the apprenticeship levy will be able to transfer up to 50% of their funds to support other businesses to enable 20,000 more apprenticeships for young people and SMEs.

The reforms will see the removal of co-investment costs from non-levy paying employers from April 2024 for apprentices under the age of 22, fully funding this provision; an increase in the levy transfer cap from 25% to 50%; as well as the DfE budget for apprenticeships increasing to “over £2.7 billion” from next year.

The Government will fully fund apprenticeships in small businesses from 1st April by paying the full cost of training for anyone up to the age of 21.

Levy Transfer Dynamics

As per current regulations, unutilised levy funds find their way back to the Exchequer if employers fail to leverage them within a two-year window. For employers faced with this dilemma, the solution lies in a straightforward choice—transferring unspent levy in alignment with their priorities.

However, the catch is that employers can only transfer up to 50% levy pot. Consequently, any proportion within the remaining 50% that remains unspent is forfeited to the Treasury.

Research conducted by the London Progression Collaboration (LPC) unveils a staggering revelation: £3.3 billion has made its way back to the Treasury in three years. This equates to a whopping £95 million per week, underscoring the magnitude of the issue.

Levy Clawback: Use it or Lose it

The government’s use-it-or-lose-it approach to apprenticeship levy rules has seen over £3.3 billion returning to the Treasury in the last three years according to research from IPPR in 2022. This data underscores the critical importance of proactive management to optimise the impact of the levy.

The case for Apprenticeship Levy reform

Insights from LPC’s analysis during National Apprenticeship Week 2022 paint a concerning picture. Entry-level apprenticeships have plummeted by 72% since 2014/15, contrasting sharply with a 400% surge in higher-level apprenticeships. The demographic shift in apprenticeship raises questions about the levy’s alignment with its intended objectives.

The livestream series with NCFE in October 2022 delved into the broader landscape of apprenticeships, examining their ongoing efficacy and the role of the levy in shaping their future trajectory.