The apprenticeship levy can be an extremely valuable tool for businesses to grow their workforce and even upskill existing staff. However, many organisations struggle to make the most of this government initiative. In fact, according to City & Guilds, only 4% of employers have used their full apprenticeship levy funding in the last five years. This means millions of pounds that could be used to develop vital skills are going to waste.
In this article, we will guide you on how to use your apprenticeship levy effectively, ensuring that you not only maximise the potential of this resource but also enhance your workforce and gain long-term benefits for your organisation.
What is the apprenticeship levy?
The apprenticeship levy is a government initiative introduced in April 2017 in the UK. The levy is designed to encourage employers to invest in apprenticeships and training by charging a 0.5% tax on their annual pay bill, which applies to employers with a pay bill exceeding £3 million. This levy is collected by HMRC and held in a digital account, which businesses can access to fund apprenticeship training.
While larger companies are typically obligated to pay the levy, even smaller businesses that do not meet the threshold can still benefit from apprenticeship schemes by using funding or co-investment options.
What can you use the apprenticeship levy for?
The apprenticeship levy is more flexible than some businesses realise. It can be used for a wide range of training needs across different roles and industries. Whether you’re in construction, healthcare, digital, or creative industries, apprenticeships can be designed to address skills gaps within your workforce.
Levy funds can be used to pay for:
- Training costs for new apprentices: You can hire new talent and fund their apprenticeship training.
- Upskilling existing staff: One of the often-overlooked uses of the apprenticeship levy is for developing your current employees by enrolling them in apprenticeship programmes that enhance their skills.
- Higher-level apprenticeships: These can be used to train employees in managerial or leadership roles.
It is important to note that the levy cannot be used for other costs associated with apprenticeships, such as wages, travel expenses, or managerial support.
How to spend the apprenticeship levy
Spending your apprenticeship levy effectively requires careful planning and a clear strategy.
Here are our tips to make sure you’re getting the most of your levy fund:
- Identify skills gaps in your organisation: Start by conducting a skills audit to identify the gaps in your workforce. This will help you align apprenticeship programmes with the actual needs of your business, ensuring you invest in areas where you’ll see a return.
- Choose the right apprenticeship training provider: Not all apprenticeship training providers are the same. By working with a reputable provider like Access Industry, you ensure that the training delivered is both practical and relevant to your organisation.
Leverage apprenticeships for both new and existing employees: You don’t need to limit the apprenticeship levy to just new hires. Many organisations are using apprenticeships to upskill or reskill their existing employees. This can lead to significant benefits, such as increased productivity, higher staff retention, and preparing employees for future leadership roles. Apprenticeship programmes range from Level 2 (equivalent to GCSE) up to Level 7 (equivalent to a master’s degree), allowing you to offer training at different levels within your organisation.
Should our organisation have an apprenticeship levy strategy?
Successful use of the apprenticeship levy requires a clear plan. By developing an apprenticeship levy strategy, you can identify how to allocate funds over time. This includes targeting specific departments for apprenticeships, deciding whether to focus on new hires or existing employees and ensuring you’re using up all available funds before they expire.
Working with an experienced apprenticeship provider, like Access Industry, can help you develop and execute a levy strategy that is aligned with your requirements.
The key is to treat the apprenticeship levy not as a mandatory cost but as an investment in your organisation’s talent pipeline.
What happens to unspent apprenticeship levy?
One of the most important things to note about the apprenticeship levy is that unspent funds will expire if they are not used within 24 months. For large employers, this can mean considerable financial loss. But, there is a way to avoid wasting these resources.
If your organisation cannot use all its levy funds, you can transfer up to 50% of the annual funds to other businesses, such as suppliers or smaller organisations in your supply chain. This creates opportunities for developing strong partnerships while also ensuring your contributions are used to develop talent.
Can an apprenticeship levy be used for existing employees?
Yes, as mentioned earlier, one of the key benefits of the apprenticeship levy is that it can be used to train existing employees, not just new hires. This is particularly beneficial for companies looking to increase retention, boost morale, and ensure staff have up-to-date skills.
For example, if you have high-potential employees who you see as future leaders, they could be enrolled in higher-level apprenticeships. Likewise, employees in technical roles can benefit from apprenticeships that offer the latest industry knowledge and hands-on training.
How much do employers get for apprentices?
When you pay the apprenticeship levy, the government adds a 10% top-up to the funds available in your digital account. This means that for every £1,000 your business contributes, an extra £100 will be added. Smaller businesses that don’t pay the levy can still access government co-investment, where the government covers 95% of the training costs, and the employer pays just 5%.
Organisations that do not pay the apprenticeship levy will receive 100% of training costs when they hire an apprentice aged 16-21, or 22-24 if they have an EHCP (Education, Health and Care Plan).
This financial support makes apprenticeships a highly cost-effective way to upskill employees and fill critical skills gaps in your organisation.
My organisation doesn’t pay into the levy, what do I get?
If your organisation doesn’t meet the £3 million annual pay bill threshold for the apprenticeship levy, you might assume that the benefits of apprenticeship funding are out of reach, but that’s not the case!
The UK government has structured the apprenticeship system to support all employers, regardless of their size. Even if you don’t contribute to the levy, your business can still access funding to support apprenticeships and reap the rewards.
Here’s what you need to know about the apprenticeship opportunities available to non-levy-paying organisations.
The government’s co-investment model is designed to help smaller businesses that don’t pay into the levy. Under this model, the government funds 95% of the apprenticeship training costs, leaving your organisation to contribute just 5% of the total cost. This makes apprenticeships an extremely cost-effective way to train new staff or upskill existing employees, without the financial commitment of large-scale training programmes.
For example, if the training cost for an apprenticeship is £10,000, the government will cover £9,500, and your organisation will only need to contribute £500. This opens the door for businesses of all sizes to access high-quality training without a significant financial burden.
For even smaller businesses with fewer than 50 employees, there’s an additional incentive: if you hire an apprentice aged 16 to 18, or a young person aged 19 to 24 with an education, health, and care (EHC) plan, the government will cover 100% of the training costs. This means your organisation can bring on apprentices without paying anything toward their training.
Selecting the right apprenticeship training provider is critical. This will help guide you through the process, support you with designing the right training programmes, and ensure that both you and your apprentices get the most out of the experience. Access Industry has a proven track record of delivering high-quality apprenticeship training that’s tailored to industry needs.
Ready to find out how apprenticeships can benefit your business? Contact Access Industry to get started.
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