How Are Apprenticeships Funded?

Apprenticeships are supported and funded by the National Apprenticeship Service and Department for Education.

The Apprenticeship Levy

The Apprenticeship levy affects UK employers in all sectors with an annual pay bill in excess of £3 million. All businesses with a UK pay bill above £3,000,000 per annum are required to pay the levy, regardless of whether they make use of the funding available for apprenticeships.

The levy is charged at a rate of 0.5% of an employer’s full UK pay bill and will be paid to the HMRC through the PAYE process alongside tax and NICs.

Levy Paying Employers

Your organisation will have calculated whether it needs to pay the levy, and will have included it in the usual PAYE payment to HMRC.

To be able to pay for apprenticeships, your organisation also needs to register for the Apprenticeship Service Account to manage apprenticeship funds online.

An employer is able to pay for apprenticeship training and assessment via this account. The government will apply a 10% top-up to the funds you have deposited in your account.

If you don’t have enough funds in your account to pay for apprenticeship training, you must pay 5% of any outstanding balance – but the government will pay the remaining 95%, up to the funding band maximum allocated to the apprenticeship you have chosen. If you exceed the funding band maximum, you will need to pay all the additional costs.

Non-levy Paying Employers

Smaller employers, who do not pay the apprenticeship levy, share the cost of training and assessing their apprentices with the government. This is called ‘co-investment’.

As a smaller employer, you can pay for apprenticeships by registering with the Apprenticeship Service Account and creating an account. For new apprenticeships, you pay only 5% towards the cost of apprenticeship training.

The government will pay the rest (95%) up to the maximum funding band of the apprenticeship you have chosen. Should the cost exceed the funding band maximum, the additional cost will need to be paid by your organisation. You will pay your 5% contribution to Channel Training (your training provider) at the beginning of the apprenticeship.

Small Employers (Fewer Than 50 Employees)

As above but for 16-21 year olds the government funds 100% of the training costs.

In addition, apprentices aged 19 to 24 who are care leavers or have an Education, Health, Care Plan (EHCP) will be 100% funded by the government.

National Insurance Savings for Apprentices

All employers are exempt from paying employer class 1 National Insurance contributions for apprentices under the age of 25 on earnings below £827 a week (or £43,000 per annum).

For example, this means that employers who have an apprentice aged 21-24, paid at real living wage, would save around £2000 in National Insurance contributions over the course of a 12-month apprenticeship.

To be eligible for exemption, your apprentice must be on a government-approved apprenticeship standard.

Government Incentives for Employing New Apprentices

Currently all employers regardless of size, will receive £1,000 for taking on an apprentice who is aged 16 to 18 years old or under 25 and has an education, health and care plan or has been in the care of their local authority.

Employers will receive this payment in two instalments via Channel Training (your training provider) who receive the instalments from the government and then forward on. The first payment of £500 will be available after the apprentice has completed 90 days of the apprenticeship and the second instalment of £500 will be available after the apprentice has completed 365 days.

There is also a Care Leaver Bursary, which is a £1,000 payment made directly from the training provider to an apprentice who is a care leaver, to help their transition into the workplace (subject to meeting eligibility criteria and having remained on programme for 60 days).