The government is pressing ahead with its plans to introduce an apprenticeship levy on businesses from 2017. The levy will be used to fund up to 3 million new apprenticeships by 2020 and is being introduced in an an attempt to address the quality of training undertaken by employers which the government insists has been falling.

Below we have set out the main points regarding the levy, based on guidance issued by the government. Note that the guidance only applies in England. The government is working with the devolved administrations in Scotland, Wales and Northern Ireland on how to make the new system work across the UK.

Who will it apply to?

The apprenticeship levy will apply to employers across all sectors in the UK. It will be payable on annual pay bills of more than £3 million. According to the government, less than 2% of employers will pay the levy.

What rate is the levy applied at?

The levy will be payable at 0.5% of an employer’s pay bill.

How will it be paid?

It is proposed that the levy will be paid through PAYE alongside income tax and national insurance.

Are there any exemptions?

There are no exemptions; however, there is a £15,000 annual allowance which employers can offset against their levy payment.

Group companies will only receive one allowance. Therefore, large employers with multiple companies will not be able to avoid the levy by using multiple allowances.

What is included in an employer’s pay bill?

The levy will be calculated on the basis of all employee earnings. Benefits in kind will not be included in the calculation.

What happens to the money once it is paid?

The money will be collected by HMRC. Individual employers’ funding for apprenticeship training in England will then be made available via a new Digital Apprenticeship Service account. All funds entering a levy payer’s account will be increased by the government by 10%.

Employers will be able to use the funds to pay for the costs of an apprentice’s training, assessment and certification. Training can be delivered directly (if the employer is approved) or via an approved provider. Funding caps will be set to limit the amount spent on individual apprentices.

When will the levy come into effect?

The levy is proposed to come into effect in April 2017.

Some have asserted that the levy is merely a tax on employers which is being used to support a government scheme. Others have claimed those who will benefit from the levy are not those who are likely to be funding it. It has also been noted that the cost of the levy may actually be borne by employees if employers fail to increase wages in order to cushion the effect of the levy. As apprenticeships are devolved to the various administrations throughout the UK, there are also concerns that this will undermine the ability of these devolved powers to administer their apprenticeship policies effectively.