Two years of the Apprenticeship Levy

Two years of the Apprenticeship Levy

The Apprenticeship Levy (the “AL”) was first introduced on 6 April 2017 with the objective of creating 3 million new apprenticeships by 2020. It was hoped that the scheme would assist employers in addressing skills shortages and continuing to develop their talent pipeline. However, two years into the AL scheme, statistics suggest that it has not achieved its aims and the scheme continues to receive widespread criticism for its inflexibility.

How does the AL work?

The AL requires employers with an annual wage bill of over £3 million to contribute an amount corresponding to 0.5% of their wage bill, less an annual offset allowance of £15,000, into the AL scheme through PAYE each month. The offset allowance means that employers with a wage bill over the £3 million threshold will only pay 0.5% of the element over £3 million, rather than 0.5% of their total pay bill.

An employer’s AL funds are accessible through an online account and can be used to fund approved apprenticeship training. Funds remain available to employers in the digital account for 24 months, after which time they are reclaimed by HMRC.

Why has the AL not been successful?

Throughout the two years since its implementation, the AL has attracted criticism for a number of reasons, including the following:

  • Difficulty accessing funds – the process has been reported as being time-consuming and overly complicated;
  • Inflexibility – the AL scheme offers a relatively limited choice of courses and does not include certain industry-specific training and qualifications;
  • Lack of clarity – due to a lack of guidance, many employers do not fully understand the benefits of the AL scheme or how to take advantage of it; and
  • A disguised business tax – the AL scheme is perceived by some as just another tax on employers, even though all businesses could potentially benefit from introducing apprenticeships.

It is clear from a report published by the Office of National Statistics (“ONS”) in January 2019 that uptake of the AL’s intended benefits has indeed been underwhelming in practice. In this report, the ONS confirmed that only 132,000 people had started apprenticeships in the 2018/19 academic year. Although this represents a 15.4% increase on the figures for 2017/18, it is still 15.2% lower than pre-AL levels. Further, the Open University reported earlier this year that £3 billion of AL funds remain untouched in employers’ digital accounts.

Pending reforms to the AL

Reforms to the AL scheme were announced in October 2018. In particular, an extra £90 million of government funding is planned to enable employers to invest a quarter of their apprenticeship funds on people working for businesses in their supply chain. In addition, a further £5 million is proposed for the Institute of Apprenticeships to enable the introduction of new standards and an update to existing ones.

As these reforms are still pending, it cannot be said whether they will go far enough to address and remedy employers’ concerns in practice. For now, it’s a case of “watch this space” until the proposed amendments come into force.

How can employers make the most of AL?

Despite criticism of the AL scheme, it should not be overlooked by employers as a useful tool in addressing skills shortages and enhancing their training and apprenticeship offering. Employers may wish to consider the following:

  • Check the balance of funds in your AL digital account and keep in mind their “expiry date” of 24 months following the date of payment, after which time the funds are reclaimed;
  • Review guidance or seek professional advice to ensure that your funds are used in the best way for your organisation’s current and future skill needs;
  • Select the training provider and colleges which best aligns with your business needs, and select training programmes which best address any skills gaps; and
  • Remember that your AL funds are not just for creating apprenticeships, they can also be used to upskill your existing staff.


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