Aug 6, 2023

How to Use the Apprenticeship Levy

The Apprenticeship Levy has been in place for a few years now, after initially being incorporated into law by the Finance Act of 2016. The apprentice levy, intending to support funding for apprenticeship training, plays an integral part in supporting skills development and growing a capable workforce.

With the implementation of the Apprenticeship Levy comes some guidelines to help employers determine the best way to allocate this new category of funding. The most interesting development of all may be the system in place for Apprenticeship Levy transfers, extending access to these funds for smaller businesses and other relevant employers.

To help businesses better understand this resource and find ways to implement it usefully, we are using this post to provide some insight into the best practices for approaching the apprentice levy.

What is the Apprenticeship Levy?

While we already briefly mentioned the Apprenticeship Levy's purpose, this system's particulars deserve a more in-depth explanation.

With the Apprenticeship Levy in place, employers must pay a tax of around 0.5% of their total pay bill (though an annual levy allowance of £15,000 is available). This Levy applies to employers with yearly pay bills in excess of £3 million, so many SMEs will not have to worry about this expense. Speaking of SMEs, organisations with less than £3 million in annual pay bills will still be able to access funding for up to 10 employees, as the government will contribute 95% of the cost required for apprenticeship training.

The employer can then reinvest this money to secure their employees' apprenticeship training. The goal of this tax is to help fund apprenticeships and boost the capabilities of the workforce, and so far, it has accomplished a lot of good when it has been applied. To increase the impact of the apprentice levy, the option for apprentice levy transfers has also been introduced.

In this case, if an employer has apprentice levy funds they are not using, they can offer to transfer this money (up to 25% of their annual levy funds) to another employer to help them finance an apprenticeship. This is an excellent idea for employers who want to support the workforce development of their local community or supply chain and ensures that paying employers can determine the application of their excess funds.

The National Apprenticeship Service is in place to help employers determine how they should allocate their funds for apprenticeship training. While applying apprentice levy funds for your employees is relatively straightforward, an apprentice levy transfer can become a bit more involved. Therefore, to help guide you through this process, we will discuss some tips for implementing best practices for apprentice levy transfers.

Best Practices for (Levy) Sending Employers

To reiterate, a levy-paying employer can transfer up to 25% of their annual levy funds to another employer. Otherwise, excess funds are used to support existing apprenticeships and help fund apprenticeships for other small businesses in the system. An apprentice levy transfer benefit is that an employer can choose the apprenticeships they want to support with their levy.

A more comprehensive range of benefits to using this system include:

  • Apply funding to your chosen community
  • Provide for critical skills shortages
  • Support relationships in your supply chain
  • Control the direction of your levy funds
  • Support small and medium-sized employers

What to know before making a transfer

Apprentice levy transfers are facilitated through an online service launched in 2021. The platform helps employers find other employers to transfer their funds to (or receive funds from, if you are looking for funding). This public-facing platform offers many tools to help employers identify the ideal candidate to receive their funds. If you are an employer with a recipient in mind, then you can also choose to make a direct transfer connection, which will require you to have the receiving employer's account ID.

But before you seal the deal on your transfer, it is essential to note a few key things.

  • You need to ensure you have enough levy funds to cover the duration of the apprenticeship. Some apprenticeships last several years, and you should be ready to support the entirety of the training.
  • With this being such a significant commitment, you can receive help with making your final decision. Intermediary bodies can help you identify suitable candidates for levy transfers and even follow through on due diligence checks to ensure the receiving employers are reliable and trustworthy.
  • The last thing to note is that if you are sending the levy funds, you cannot provide the training for the receiving employer.

This is an important responsibility, and many apprentices may be lying in wait while you are deciding on your transfer decision. So be swift but diligent and identify the most impactful recipient for your levy funds.

Best Practices for (Levy) Receiving Employers

If you are an employer receiving a levy transfer, you must respect this arrangement's importance and follow through on your commitment to establishing an adequate apprenticeship. While the government will still help cover 95% of apprenticeship costs (for up to 10 employees), if you are an SME with under £3 million in pay bills, a levy transfer can help you account for the other 5% you would be responsible for.

Some other benefits of receiving this transfer include:

  • Being able to offset funding that could be used to support other areas of your business.
  • Apprenticeships can apply to existing employees looking to improve their skills, not just new employees.
  • Support your local community with new opportunities, or contribute to the development of your larger supply chain.

What to know before accepting a transfer

As a levy transfer receiving employer, it is also crucial that you have an apprenticeship service account. This is important so that sending employers can find you and so that the funds' transfer can be accepted as well. In addition, you will need to provide information regarding the goal of your apprenticeship so that sending employers can identify the impact of their transfer.

Before you look for a transfer, there are a few things you should consider as well:

  • What is your apprenticeship standard? First, you need to identify the apprenticeship training you will be allocating your funds to. There are a few different resources available that can help you identify what standards are available and applicable to your needs.
  • Choose a training provider. You also need to select which provider will be responsible for providing the apprenticeship in question before you can receive funds. The previous resources can assist you with this process as well.
  • Set a start date. You must know when your ideal start date for your apprenticeship will start. The sending employer will need this information to help establish transparency for their commitment.

Your responsibility for receiving a levy transfer may be even more important than the sender. You are liable for managing the apprenticeship, so you must stick to your commitment to secure an apprenticeship when you receive your funds. This is why transfers should be agreed upon before the apprenticeship begins and why sending employers will often follow through on due diligence checks to ascertain your reliability. You are also not allowed to provide any incentives to sway employers to favour you, so just make your cause clear and let it be known that you are a trustworthy employer.

Making the Most of the Apprentice Levy System

Over the relatively short time that the Apprenticeship Levy has been in place, many businesses and sectors have benefited from providing and receiving these funds. For example, there are instances where building companies have supported engineering and manufacturing businesses in their local market, providing for the community and solidifying the productivity of their supply chain for years to come.

Other initiatives have included intermediaries connecting funding businesses with recipients who are interested in supporting employment opportunities for ethnic minorities, LGBTQ+, and candidates from low socio-economic backgrounds. Overall, the apprenticeship levy has been a great way to develop the workforce across many different industries and regions.

If you are a levy transfer sender employer, you must recognise the impact your funding can have on SMEs and the market in general. While SMEs are one of the simplest ways to provide a benefit with your levy transfer funds, addressing critical gaps in specific skills and communities is also vital for the success of the business world. After exhausting your research into the best source of your funds, consider turning to an intermediary whose primary function is to make informed connections between funders and recipients (your levy transfer could even help support these businesses, in fact.)

As a levy transfer recipient, it is also essential that you uphold the spirit of this system. While due diligence checks should be standard by sending employers, it is still on receiving businesses to ensure that the entire duration of apprenticeships moving forward are well supported and that distrustful companies do not misuse funds. So before you look to secure a transfer for your apprenticeships, consider the lasting impact of this arrangement and how you can make sure to support your apprenticeship moving forward.

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