What is the Apprenticeship Levy?

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As an umbrella employee, it’s essential to understand everything that appears on your payslip.

When you look at your invoice reconciliation sent to you by your umbrella company, you’ll see a list of deductions: Employer National Insurance and Apprenticeship Levy being two of these. You might be familiar with Employer National Insurance, but what is the apprenticeship levy?

Read on to learn all about the apprenticeship levy and what it means for you.

What is the apprenticeship levy?

The apprenticeship levy was introduced in 2017, to help fund apprenticeships and provide better training opportunities across England.

Since its introduction, however, there has been some confusion around the scheme, how it’s accessed and, ultimately, who pays for it.

Who pays the apprenticeship levy?

The apprenticeship levy is a tax paid by employers with a payroll of more than £3m. Businesses meeting the criteria must pay a flat 0.5% of their total annual pay bill into the fund. This applies to both public and private sector organisations.

The annual wage bill is the sum of all payments made to all workers operating via PAYE (including contractors working inside IR35), who are subject to Class 1 National Insurance contributions.

How does the apprenticeship levy work?

The money paid into the apprenticeship levy is used as a source of funding for apprentices in vocational training.

Employers that pay the levy have access to an online apprenticeship account, where they can see the funds available to them for financing apprenticeships. These businesses pay 90% of their apprentices’ costs, with the government paying 10%.

Non-levy paying businesses only need to pay 5% or 10% of their apprentices’ costs, with the remaining 95% or 90% paid for by the government.

Umbrella companies and the apprenticeship levy

Due to the nature of their business, many umbrella companies will have payrolls greater than £3m in value. As such, many meet HMRC’s criteria for the apprenticeship levy.

And because umbrella companies are employers of umbrella workers, they’re required by law to pay all relevant employment taxes on your income, including the apprenticeship levy.

So, to recap, the apprenticeship levy is a tax paid by employers to help fund apprenticeships and training opportunities. It’s important to make clear that this tax doesn’t impact how much you take home personally, given the apprenticeship levy will have already been incorporated into the employment costs, which are passed onto the end client.

If you have any questions about how the apprenticeship levy affects you as an umbrella worker – and what sets Parasol apart from other umbrella companies – please speak to one of our experts.