As George Osborne, Chancellor of the Exchequer stated: ‘‘So we are going to take a radical and frankly overdue approach. We are going to introduce an apprenticeship levy on all large firms,’’

‘‘Firms that offer apprenticeships can get back more than they put in. Britain’s great businesses are training up the next generation. The money will be directly controlled by employers and we will work with businesses on how to do this.’’

‘‘It’s exactly the sort of bold step we need to take if Britain is going to raise its game.’’

The apprenticeship levy will come into effect in April 2017, at a rate of 0.5% of an employer’s pay bill. A £15,000 allowance for employers will mean that the levy will only be paid on employers’ pay bills over £3 million.

Less than 2% of UK employers will pay the levy.


  1. It will be payable by employers in the UK at 0.5% of paybill.
  2. All employers will receive an allowance of £15,000 to offset against payment of the levy. This effectively means that the levy will only be payable on paybill in excess of £3 million per year.
  3. The levy will be payable through Pay As You Earn (PAYE) and will be payable alongside income tax and National Insurance.
  4. Each employer will receive one allowance to offset against their levy payment.

There will be a connected persons rule, similar to the Employment Allowance connected persons rule, so employers who operate multiple payrolls will only be able to claim one allowance.

  1. The levy will apply to employers across all sectors.
  2. Paybill will be calculated based on total employee earnings; it will not include other payments such as benefits in kind. It will apply to total employee earnings in respect of all employees.
  3. Legislation to permit the imposition and collection of the apprenticeship levy will be introduced in the Finance Bill 2016.


  1. Employer of 250 employees, each with a gross salary of £20,000: Paybill: 250 x £20,000 = £5,000,000

Levy sum: 0.5% x £5,000,000 = £25,000

Allowance: £25,000 – £15,000 = £10,000 annual levy payment

  1. Employer of 100 employees, each with a gross salary of £20,000 would pay: Paybill: 100 x £20,000 = £2,000,000

Levy sum: 0.5% x £2,000,000 = £10,000

Allowance: £10,000 – £15,000 = £0 annual levy payment

Dr Lynn Gambin and Terence Hogarth, from Warwick’s Institute for Employment Research are skeptical and have given their response to the levy, summarised here:

The introduction of the Apprenticeship levy may be regarded as a bold step. It is a bold step simply from the perspective that it might, in the light of what is known already about training levies, be a leap into the unknown.

“It will be interesting to observe if the levy is successful in increasing the number of Apprenticeship starts – the impact this will have upon overall government spending on Apprenticeships. And if an increase materialises, whether this will be at the expense of other forms of post 16 vocational education and training?

“The need to reduce public expenditure may be a significant factor in deciding upon a return to training levies, but this is nonetheless a bold step in the further, ongoing reform of the vocation education and training system.

“It has the potential to deliver many benefits, but there is a potential downside too. The detail of what will be eventually introduced is keenly awaited.”

However, the Chancellor has taken on board advice given by Skills adviser Professor Lady Alison Wolf of the Kings College – whose government report entitled Fixing a Broken Training System: The case for an apprenticeship levy, called for a 0.5 per cent tax on employers payrolls and stated, ‘‘David Cameron’s talk of improving apprenticeship quality while also having 3m new apprenticeships by 2020 is self-deception, at best. Under current budgets, it simply cannot be done.’’

The Full Outcome of the Government’s consultation may be downloaded, here.

We would advise Employers across all sectors to seek local assistance and guidance in advance to as ascertain how the Apprenticeship Levy will work and how it will affect your business operations.