Apprenticeships have long been a landmark pathway for individuals to gain practical skills and knowledge while earning a wage and contributing to organisational growth. To expand the reach of apprenticeships and address skill gaps in the workforce, the UK government introduced the Apprenticeship Levy in April 2017.
The Apprenticeship Levy effectively operates as a small tax on large businesses, and was designed to encourage employers to invest in apprenticeship programs. It requires all employers in the UK with a payroll of over £3 million per year to contribute 0.5% of their annual wage bill towards apprenticeships. This amount is then placed into an Apprenticeship Service account, from which the company can access funding to train and hire apprentices.
The primary goal of the Apprenticeship Levy is to increase the number and quality of apprenticeships available, ensuring that individuals have access to the training they need to enter and thrive in various industries. By placing the responsibility of funding directly on the shoulders of employers, the government aims to incentivise businesses to invest in their workforce and create opportunities for individuals to develop valuable skills.
Employers subject to the Levy can use the funds in their Apprenticeship Service account to cover the cost of apprentice training and assessment and pay apprentices’ wages. The government also provides an additional 10% top-up to the employer’s digital Apprenticeship Service account, further enhancing the available funds for developing apprenticeship programs.
To access the funds, employers must register for an Apprenticeship Service account and declare how they plan to use the available funds. They can choose from a wide range of apprenticeship standards or frameworks that align with their industry and job roles. This flexibility allows employers to tailor apprenticeships to suit their specific needs and ensure that apprentices receive training relevant to their chosen career paths.
Small to Medium Sized Businesses (SMEs) not subject to the Levy (i.e. with wage bills less than £3m a year) can also benefit from the Apprenticeship Levy scheme. While they are not required to contribute, they can still access funds from the government for apprenticeship training by paying only 5% towards the cost, while the government covers the remaining 95%.
Furthermore, to ensure that the system remains fair and inclusive, employers are given 24 months to spend their Levy funds before they expire. This allows businesses to develop long-term apprenticeship plans and make the most of available resources.
The introduction of the Apprenticeship Levy has seen a surge in the number of apprenticeships across various sectors in the UK. From traditional trades like plumbing and construction to emerging fields like digital marketing and cybersecurity, the Levy has broadened opportunities for individuals to access high-quality training and increase their employability. Importantly, it has also allowed organisations to fill the growing Leadership gap in the UK economy via Management Apprenticeships.
While critics argue that the 0.5% tax burden can be challenging for businesses, many employers have recognised the value of investing in apprenticeships as a means of building a skilled workforce and addressing skill shortages. By training and developing apprentices, businesses can create a pipeline of talent, increase productivity, and contribute to economic growth.
Overall, the Apprenticeship Levy represents a significant investment in the future of the UK workforce. By providing employers with the means to develop apprenticeship programs and fostering opportunities for individuals to gain valuable skills, the Levy plays a crucial role in bridging the gap between education and employment, ultimately leading to a more prosperous and skilled workforce for the nation.