Apprenticeship funding in the UK has undergone major changes over the past few years, aiming to bridge the skills gap while promoting vocational education. Central to these reforms is the introduction of the Apprenticeship Levy and various incentives designed to encourage businesses to take on apprentices.
The Apprenticeship Levy: What and Who?
Introduced in April 2017, the Apprenticeship Levy is a mandatory tax paid by employers in England with an annual pay bill over £3 million. The levy is charged at a rate of 0.5% of an employer’s total payroll, irrespective of whether they employ apprentices or not. The idea behind this reform was to fund new apprenticeships and improve the quality of training.
The History of Apprenticeship Funding and the Introduction of the Levy
Apprenticeship funding has been a part of the UK's education policy for centuries, but its most significant shift came in 2017 with the introduction of the Apprenticeship Levy. The change was a response to the need for improved skills training and a more robust apprenticeship system. It aimed to create 3 million new apprenticeships by 2020 and increase the quality of apprenticeship training.
What Happens if the Full Levy isn't Used?
The funds obtained via the levy expire 24 months after they’re entered an employer's digital account if not used. Post this period, the unused funds are reclaimed by the government. This 'use it or lose it' policy aims to encourage businesses to take full advantage of the system.
Co-investment and Incentive Payments
For smaller businesses not paying the levy, or larger businesses that have exhausted their levy funds, a co-investment scheme is available. Originally, employers had to pay 10% towards the cost of apprenticeship training, but in April 2019, the government reduced this to 5% to lessen the financial burden.
Alongside, the government also introduced incentive payments for hiring new apprentices. This applies to employers of all sizes and can range from £1,000 to £3,000 per apprentice depending on various factors such as the apprentice's age and the company size.
Below are some of the government incentives payments currently working:
Employers that take on an apprentice aged 16 to 18 will receive a £1,000 government incentive to help with the costs associated with taking on a younger worker.
Employers that take on an apprentice aged between 19 and 24 who have previously been in care can also access a £1,000 government payment.
Small employers below 50 people can train apprentices aged 19 to 24 who have left care at no cost.
These incentive payments are paid to your training provider by the Education and Skills Funding Agency (ESFA), where they are then paid on to you, the employer. The payment is usually split into, with the first payment usually paid after the first 90 days of the apprenticeship starting, while the second is due after 365 days of being on the apprenticeship. Further funding may also be eligible which is paid directly from the ESFA to the employer, this can be drawn down from your Digital Apprenticeship Service (DAS) account.
SME Relief Waiver for Co-investment
Recognising the financial constraints faced by small and medium-sized enterprises (SMEs), a relief waiver was introduced. From August 2021, SMEs can access funding for apprenticeships without having to make a co-investment contribution, a welcome relief for many smaller businesses. Employers are eligible for this scheme if they employ less than 50 people.
Levy Gifting and Co-Op’s Levy Share Scheme
Levy-paying employers have the option to transfer a percentage of their annual levy funds to other employers, including smaller businesses in their supply chain or sector. This is known as 'levy gifting'. A prime example of this is the Co-Op’s Levy Share Scheme, which allows the Co-Op to fund apprenticeship training in their supply chain, creating a supportive ecosystem.
Their levy sharing portal allows smaller employers to submit opportunities where they can request levy funding, a levy paying employer then can view these opportunities and if they would like to support this particular one then there will be a match.
The current CO-OP target for levy donating is £23 million and at the time of writing this, it currently stands at just under £21 million, around 95% of their target. To get involved please find more information by clicking the button below.
Labour's Proposal: Turning Apprenticeship Levy into a Skills Levy
The Labour Party has proposed transforming the Apprenticeship Levy into a broader 'Skills Levy'. This reform would potentially allow employers to spend their levy not only on apprenticeships but also on other forms of high-quality training. The intent is to give employers greater flexibility in how they use their levy to meet their specific skills needs.
While the Apprenticeship Levy has faced some criticism for its inflexibility, it's undeniable that the reform has greatly changed the apprenticeship funding landscape. The potential transformation into a Skills Levy could bring further dynamism into this area. As with any such scheme, the key to success lies in employers being fully aware of and maximising the opportunities available to them – whether that be through incentive payments, co-investment, or levy gifting. After all, investing in apprenticeships is an investment in the future skills base of the country.
Further Information and Resources
If you still have questions or would like more detailed information about apprenticeship funding, please do not hesitate to reach out to our dedicated team. We're here to guide you through every step of the process and help you maximise the opportunities available to you.
We also recommend visiting our 'Employer Corner' which offers a comprehensive overview of apprenticeship funding and other pertinent topics. With in-depth guides and resources, our Employer Corner serves as a reliable companion for all your apprenticeship-related queries.