4 min read

How to calculate the Apprenticeship Levy

By Oliver Simpson on Feb 22, 2019 1:00:00 PM



This is the third article in our 18 part series on the Apprenticeship Levy. In our last post, we talked about whether or not it’s okay to use levy funds to train existing staff and what processes are involved.

This time, we’re turning our focus to the fund itself and how it’s generated. If you're eligible to pay into the levy, how is your contribution calculated? And how much of the fund will your business have access to? If you’re not paying into the fund you may still have access to levy funds, but how does that work? 


Who has to contribute to the Apprenticeship Levy?

The Apprenticeship Levy was rolled out in April 2017 across the UK with a singular objective - to create 3 million new apprenticeships by 2020. To achieve this, the 2% of businesses in the UK who have an annual payroll of £3 million or more are required to pay into the levy fund. This fund can then be accessed by them and their fellow employers, as well as those smaller businesses further down the chain. Because levy payments for large businesses are compulsory, the Apprenticeship Levy guarantees a universal fund exclusively for apprenticeships. With the fund in place, more and more businesses are being encouraged to enrol their employees in apprenticeship schemes as well as bring in new apprentices.


How is the contribution calculated?

It’s actually very simple. Any business that has a payroll of £3 million or more per annum must start contributing 0.5% of their payroll costs. This applies to all sectors, including charities and foundations. If you are a secondary contributor with liability to pay Class 1 secondary National Insurance, then you qualify as an ‘employer’ in the government’s eyes.

As an example, if an employer had an annual pay bill of £5,000,000, they would pay £25,000 into the fund every year. However, each business also has a £15,000 levy allowance which is subtracted from what they owe. So the actual amount in this case would be £10,000. Thankfully, paying into the levy is a completely painless process requiring very little action on the employer’s part. The levy contribution is paid direct to HMRC through PAYE so the entire process is automated.


What funding are businesses entitled to?

We know how the contributions are calculated, but how much funding can a business access for apprenticeships? If you’re a levy-paying business (in the 2%) you can gain access to everything you contributed via a digital voucher that can be applied by booking apprenticeship courses. This may sound like an extra hoop to jump though, but this ensures that the highest earning businesses are heavily motivated  to use some of their capital on apprenticeship schemes. If they don’t claim back their funds then, after 24 months, they are released into the general ‘pot’ for SMEs and other businesses to use.

If you’re a non-levy paying business (98% of businesses), you can still access the fund but you’ll need to contribute 10% of the initial cost. The government will then pay for the remaining 90%. If your business has less than 50 employees you won’t have to pay a penny if you employ an apprentice who is under the age of 19, and you’ll even receive a £1,000 grant toward their training.

All in all, the Apprenticeship Levy has been designed to help everyone right across the board. Under the current levy arrangements, it’s in a larger business’ interest to start using apprenticeships (to not only recoup their contributions, but up-skill their workforce and invest in employee development), and SMEs are able to fund apprenticeships and draw in fresh talent that they otherwise may not be able to afford. Of course, the real winners are the aspiring apprentices themselves, from school leavers through to middle managers and above who want to take the next step in their career.

In our next post in this series, we’ll look a little more closely at the digital accounts associated with the levy and how to set them up and use them.

About Ascento

Ascento learning and development specialise in providing workforce development apprenticeship programmes to both apprenticeship levy paying employers and non levy employers. We work closely with employers to identify the key areas for development and design  strategic solutions to tackle these with programmes that are tailored to each individual learner. With two schools of excellence focusing on Management and Digital Marketing we don’t deliver every qualification under the sun, but focus on what we know best and ensure that quality is at the heart of everything we do.


Oliver Simpson

Written by Oliver Simpson