The Apprenticeship Levy was first announced in the Summer Budget 2015 and it was later confirmed in the Autumn Statement 2015 that the levy would be introduced from 6 April 2017. Primary legislation was subsequently included in the Finance Act 2016, Pt. 6 (s. 98 – s. 121) and secondary legislation (Income Tax (PAYE) Regulations 2003, Pt. 7A) was inserted with effect from 6 April 2017.
Who needs to pay Apprenticeship Levy
Apprenticeship Levy is an amount paid at a rate of 0.5% of an employer’s annual pay bill.
As an employer, you have to pay Apprenticeship Levy each month if you:
- Have an annual pay bill of more than £3 million
- Are connected to any companies or charities for Employment Allowance purposes and have a combined annual pay bill of more than £3 million
You must report and pay Apprenticeship Levy monthly through your Employee Payment Summary.
All sectors must pay the levy if they have an annual pay bill of over £3 million (including any connected companies or charities).
The sectors that have specific rules for paying Apprenticeship Levy are:
- Off-payroll working
- Short-lived companies
- Managed service companies
- Employment or recruitment agencies
- Joint ventures
Your annual pay bill
Your annual pay bill is all payments to employees that are subject to employer Class 1 secondary National Insurance contributions.
such as wages, bonuses and commissions.
Your pay bill must include payments to:
- All employees earning below the lower earnings limit and the secondary threshold
- Employees under the age of 21
- Apprentices under the age of 25
Your pay bill must not include earnings:
- Of employees under the age of 16
- Of employees who are not subject to UK National Insurance contributions legislation
- On which Class 1A National Insurance contributions are payable, such as benefits in kind
Using your Apprenticeship Levy allowance
The allowance reduces the amount of Apprenticeship Levy you have to pay by £15,000 across the year.
You cannot carry over any unused allowance into the next tax year.
If you start or stop being an employer part way through the tax year you can use your full annual Apprenticeship Levy allowance against the amount of the levy that you owe.
Work out what you owe
Apprenticeship Levy is charged at 0.5% of your annual pay bill. You can use HMRC’s Basic PAYE Tools to help you work out how much you need to pay.
For the first month of the tax year:
- Divide your Apprenticeship Levy allowance by 12.
- Subtract this figure from 0.5% of your monthly pay bill.
For each of the following months:
- Work out your total pay bill for the year to date.
- Add up your monthly levy allowances for the year to date.
- Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date.
- Subtract the amount of the levy you’ve paid in the year to date.
If you start paying the levy part way through the tax year, you need to:
- Work out how much of your annual allowance has been accumulated in the current year.
- Divide your full annual allowance by 12.
- Multiply by the number of months since the start of the tax year.
This figure is your allowance for the first month you report the levy. Any unused allowance can be carried forward into the next month within the same tax year.