What is the apprenticeship levy and why it is important to you?

The apprenticeship levy is a form of tax that helps fund work-based training. 

The apprenticeship levy was launched in April 2017. It is essentially a UK tax on large businesses to help fund new apprenticeships and support quality training.

Crucially, the money collected, at a rate of 0.5% of an employer’s wage bill, is redistributed to employers that take on apprentices.

Only employers with a wage bill of £3 million or more pay the apprenticeship levy, so large businesses foot the cost of apprenticeship training. At the same time, any business – whether they pay the levy or not – can access funds to take on apprentices.

Much of the money in the apprenticeship levy pot has gone unclaimed, requiring the government to reform the system so the small- and medium-sized enterprises (SMEs) that are meant to benefit from it can do so more easily. Employers in England are able to transfer up to 25% of their unspent funds to SMEs within their supply chain.

From 1 April 2024, the UK government pays the full cost of apprenticeships for people aged 21 or under at small firms.

Why are SMEs so important?

In the UK, SMEs account for three fifths of jobs, but apprenticeship starts within these businesses fell 40% as of March 2020, while starts with large employers rose 8%.

In 2019, UK housebuilder Redrow surveyed 1,001 decision-makers with varying degrees of hiring responsibility at SMEs with fewer than 250 people, including 119 SMEs operating in the construction sector, to understand the value they find in apprentices and the barriers to taking more on. Its research revealed:

  • 73% of construction sector SMEs took on apprentices in that financial year, compared to 65% of SMEs across all sectors.
  • Of those not employing apprentices currently, more than a third (38%) of construction SMEs perceived funding to be the main barrier.

With more than a third (38%) of construction SMEs saying that funding was the main barrier to taking on new apprentices, it was important that the apprenticeship levy was reformed to free up unspent funds, particularly for sectors where apprentices are a key part of the workforce.

Karen Jones, HR director at Redrow, commented at the time: “Redrow warmly welcomes the announcement, which will bring about change to a system that unfairly disadvantaged smaller businesses, levelling up apprenticeship opportunities across the board. Apprentices are a vital talent stream within the construction industry, helping to power SMEs and, if successful, many will become construction business leaders themselves in the future.

What does the apprenticeship levy mean for you?

  • With more money being spent on new apprenticeships and training, there will be much more to offer students deciding on their career pathway.
  • In the first two years since the levy began, it directly supported 312,900 people to start on their apprenticeship journey.
  • The levy was introduced to create longterm sustainable funding for apprenticeships and to give employers more control to provide their staff with a range of training opportunities.
  • The levy means there is more money available than ever before for apprenticeship training and allows employers to choose which apprenticeships they offer, how many and when.

Visit www.gov.uk for further information.

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