The Apprenticeship Levy should be a boon for small and medium-sized enterprises (SMEs). Introduced in 2017, the levy requires all employers with a wage bill of £3m or more to pay into a fund financing the cost of apprenticeship schemes; these firms then reclaim government vouchers that help them meet the costs of their own apprenticeship initiatives.
Firms with lower wage bills are not required to pay the levy but can still claim funding for apprentices often as much as 95% of their costs.
Unfortunately, the levy hasn't matched expectations. Many SMEs are now reluctant to run apprenticeship schemes because accessing funds from the levy is so complicated.
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Nor do the finances of the scheme stack up. According to the Association of Employment and Learning Providers, which represents apprenticeship scheme providers, one in four of its members have had to turn away SMEs looking for funding to take on apprentices.
The problem is that the sums claimed by large levy-paying employers do not leave enough to finance the ambitions of smaller non-levy-paying businesses.
The funding crunch comes at a difficult time. The Department for Education is shortly due to begin a £500,000 campaign to promote the take-up of apprenticeships by SMEs. Ministers insist they are committed to providing additional funding for apprentices, and to reforming the Apprenticeship Levy to simplify it.
That would be welcomed by SMEs. The Federation of Small Businesses has found that 24% its members already employed at least one while a similar number were keen to do so.
It's worth pointing out that many small businesses are still making great use of apprentices and benefiting from reforms to the system, with the fees charged when they take on apprentices having been halved last year. Most SMEs applying for funding from providers are succeeding.
Where to find help
Selecting the right training partner is crucial. These providers are responsible for delivering the training apprentices will receive and also play a vital role in advertising vacancies and recruitment. Some can also take on all the administration involved in running an apprenticeship scheme.
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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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