How to benefit from the Apprenticeship Levy

How can professional firms benefit?

Louis Baker
All employers, including professional firms, with a wage bill greater than £3 million per annum, will need to pay an apprenticeship levy of 0.5% of their total annual wage bill for their April 2017 payroll onwards.
  • Each employer has an annual allowance of £15,000 to offset the levy. Unused allowances cannot be carried forward, but the full allowance is available for employers that join or drop out of the scheme during a year.
  • The levy applies to all employers, but, because of the annual allowance, only those with a total wages bill of more than £3 million will actually end up paying anything. That is because £3 million x 0.5% equals £15,000 and so is covered by the allowance.
  • The levy is calculated each month, and paid through PAYE. This means the employer can only deduct one twelfth of the allowance from their levy bill each month. Any unused allowance can be carried forward to the next month – but only within the same tax year. Therefore, any unused allowance at the end of the tax year is lost as it cannot be carried forward to the next tax year.
  • The levy payments go into an online account for each employer and the funds in this account represent the amounts they have actually paid in, plus a 10% 'top up'payment from the government. Funds stay in the employer’s online account for 24 months, after which time they are no longer available. As funds are used by an employer, they are deducted from the account on a first in first out basis.
  • Funding of this type is only available to the employers who actually pay the levy.
  • If qualifying apprenticeship training funds are needed in excess of those in the employer’s account, the employer pays 10% of the additional amount required, while the government pays the other 90%, and this is referred to as 'co-investment'. This 'co-investment' is applied on a month by month basis, with the employer paying their share of the outstanding balance not covered by the levy funds, and the government paying the rest. While this appears to be a very generous approach from the government, note that the government only makes this contribution up to a total available funding limit (called a 'funding band maximum') which depends on the level of the apprenticeship training – more on this later. Above this funding band limit, the employer is then responsible for the full balance.
  • For employers who do not pay the levy, all apprenticeship funding will be through the 'co-investment' approach, up to the funding band limits, until at least 2018.

Using the levy

Practices do need to bear in mind that there are limitations on the way that the funds are used. For example, the funds cannot cover ancillary costs, such as travel and administrative costs, and they cannot be used towards an apprentice's wages. Furthermore, 20% of the apprentice’s working time must be on 'off the job training' – effectively making them unavailable to their employer during this time.

An apprentice must be employed for more than 16 hours per week (including the 'off the job' training time), and they should have the same conditions and employment rights of other employees, such as holiday pay, sick pay, childcare voucher schemes etc.

Apprenticeship training does not just apply to brand new employees, it can be used to re-train existing employees. It also covers a very wide range of training. Although there may be an assumption that apprenticeship training is only suited to individuals who have come straight out of school with little in the way of academic qualifications, this does not necessarily apply. For example, for aspiring legal professionals, there are apprentice training routes available for full solicitor qualification such as the SRA's Trailblazer scheme which was introduced in 2016. This is perhaps surprising for practices that may have assumed apprentice schemes were more suited to paralegal, support staff or administrative type roles.

For accountants (as well as practices that employ finance staff), there is a wide range of apprenticeship training available, covering training for cashiers, accounts assistants and credit control clerks, to professional qualifications such as the Accounting Technician qualification. This is worth bearing in mind for all types of practice, not just accountants, and in fact may be better suited to practices for whom the accounts function is a support, rather than core, service.

There are far too many work areas that are covered by qualifying apprenticeship schemes to list here, but employers can review the up-to-date list of eligible training [pdf].

Some professional qualifications, such as Actuary, are not currently covered by the scheme, while more traditionally 'vocational' qualifications, such as Actuarial Technician, are covered.

Where employees were already undergoing some form of training prior to the new levy scheme coming into effect, they are not necessarily excluded from starting an apprenticeship scheme. However, the government expects employers to take prior learning into account when negotiating prices and agreeing course content with course providers as there is a requirement that levy funds are not used to pay for skills already acquired by the apprentice.

The amount of funding available depends on the level of apprenticeship. So, for example, an individual looking to train as a solicitor will be eligible for a larger amount of funding than an individual looking to train as a Legal Executive. The bands range from total funding of £1,500 to £27,000, with the employer being solely responsible for funding above the cap.

Connected companies rules

Employers need to bear in mind that there are special rules concerning 'connected companies', and these impact on the way that the £15,000 levy allowance is shared between connected entities. Connected companies have to share the allowance (that is, they do not get a £15,000 allowance each) but they can share it in any proportion they wish. However, these proportions can only be decided once in every tax year, and so it is important that affected employers think carefully about how to calculate the split.

Impact on firms

In terms of cost, this new method for funding apprenticeships may work out to be more expensive for employers than the current situation, and significantly more so for employers of a reasonable size that do not normally use apprentices, as they will be paying into a pot that they may not fully use.

However, because of the 10% 'top up' payment from the government, there are also opportunities for those practices that embrace the scheme to get more out of it than they actually pay in. This is also true for employers that pay a relatively low amount into the scheme (or none at all) and are therefore eligible for 90% contributions from the government under the 'co-investment' rules.

Contact us

Louis Baker
Louis Baker
Head of Professional Practices