April 2025 Apprenticeship Levy changes: A payroll perspective
With National Apprenticeship week having just passed, (10-16 February 2025) the team at Price Bailey provide you with the latest detail on the changes to the Apprenticeship Levy scheme set to come into play in the coming months. Employer investment in training has been in steady decline over the past decade, with training expenditure at its lowest level since records began in 2011, with investment per employee down by 19% in real terms. This highlights the need for government reforms to the skills and apprenticeships system.
The UK government has announced upcoming changes to the Apprenticeship Levy in April 2025, which will impact how businesses manage their payroll and training budgets. Key initiatives include the launch of Skills England, £40m to help implement new foundation and shorter apprenticeships, a reformed apprenticeship levy, and an increase in the apprentice minimum wage from £6.40 to £7.55.
Most UK business owners will likely have come across this scheme, designed to fund apprenticeship training. Introduced in 2017, the Apprenticeship Levy is a tax on UK employers with an annual pay bill exceeding £3m. These businesses must then contribute 0.5% of their payroll fund to apprenticeship training.
Growth and Skills Levy
In September 2024, it was announced that the Apprenticeship Levy would be replaced with a Growth and Skills Levy, with some changes being first introduced in April 2025. Employers must stay ahead of these adjustments to ensure compliance while optimising their workforce development strategies.
What changes have been announced?
The Apprenticeship Levy, introduced in 2017, requires businesses with an annual payroll exceeding £3 million to contribute 0.5% of their wage bill into a fund dedicated to training apprentices. Under the new reforms:
- Increased flexibility in fund usage: Employers will have greater control over their levy funds, with the ability to allocate them more flexibly, potentially extending to broader training and upskilling programs beyond apprenticeships.
- Changes in expiry rules: Currently, unused levy funds expire after 24 months. The government is considering adjustments to these rules, possibly allowing businesses more time to utilise their funds effectively.
- Support for SMEs: Non-levy-paying businesses (those with payrolls under £3 million) may receive enhanced access to levy funding through government co-investment schemes.
Payroll implications of the Levy reforms
Payroll teams will play a crucial role in adapting to these changes, as they directly impact how businesses calculate and allocate levy contributions. Here’s what payroll professionals need to consider:
1. Levy calculations and adjustments
Businesses must ensure that payroll systems correctly calculate the 0.5% levy contribution, we will endeavour to update clients further shall any changes to this be announced. Payroll software updates may be necessary to accommodate these changes.
2. Budget planning and fund allocation
With increased flexibility, payroll and finance teams should collaborate to assess how levy funds can best be utilised for skills development. Employers might need to track training expenses differently, ensuring compliance with the new guidelines.
3. Expiry and reporting updates
If expiration rules are modified, employers will need to monitor levy fund usage more closely to prevent underutilisation. Accurate reporting on fund usage and apprenticeship engagement will be essential for financial planning.
4. SME support considerations
Smaller businesses benefiting from new government co-investment schemes may need payroll adjustments to reflect changes in funding structures. Payroll teams must ensure they correctly process any subsidies or exemptions available to SMEs.
How should I prepare for the changes?
To stay compliant and take full advantage of the new Apprenticeship Levy structure, payroll teams should ensure that they:
- Review payroll software for necessary updates to levy calculations and reporting.
- Collaborate with HR and finance to align training budgets with levy opportunities.
- Stay informed on legislative updates and government guidance to ensure accurate payroll processing.
The 2025 reforms present an opportunity for businesses to refine their payroll strategies while maximising workforce development. By proactively adjusting payroll systems and strategies, organisations can ensure they remain compliant while making the most of the available funding for skills training and apprenticeships.
Should you have any questions for our team relating to changes, please use the form below to contact one of the team…
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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