Navigating the Apprenticeship Levy: A Guide for UK Employers
Did you know that the Apprenticeship Levy has generated over £2.8 billion in funding for apprenticeships in the UK? This payment, made by employers with an annual pay bill of more than £3 million, has a significant impact on the availability of apprenticeship training and funding in the country. If you’re an employer in the UK, understanding how to navigate the Apprenticeship Levy is crucial to accessing subsidised apprenticeship training and maximizing your apprenticeship funding.
Key Takeaways:
- The Apprenticeship Levy is a payment made by employers in the UK with an annual pay bill of more than £3 million.
- The levy is set at a rate of 0.5% of the employer’s annual pay bill and is used to support funding for apprenticeships.
- All sectors, including connected companies and charities, must pay the levy if their annual pay bill exceeds £3 million.
- Employers have the option to use their levy funds to access subsidised apprenticeship training or transfer 10% of their funds to another employer.
- Understanding how to calculate, report, and pay the levy is essential for complying with the regulations and optimizing your apprenticeship funding.
Who needs to pay Apprenticeship Levy
Employers with an annual pay bill of more than £3 million must pay the Apprenticeship Levy. This includes all sectors, including franchises, off-payroll working, short-lived companies, managed service companies, employment or recruitment agencies, joint ventures, and schools. The annual pay bill includes all payments subject to employer Class 1 secondary National Insurance contributions. However, it does not include earnings of employees under the age of 16 or employees not subject to UK National Insurance contributions legislation. Even if employers already contribute to an industry-wide training levy arrangement, they are still required to pay the Apprenticeship Levy.
“The Apprenticeship Levy applies to all sectors with an annual pay bill of more than £3 million. This means that employers in industries such as franchises, off-payroll working, short-lived companies, managed service companies, employment or recruitment agencies, joint ventures, and schools are required to pay the levy. The annual pay bill includes all payments subject to employer Class 1 secondary National Insurance contributions.”
- Franchises
- Off-payroll working
- Short-lived companies
- Managed service companies
- Employment or recruitment agencies
- Joint ventures
- Schools
“Even if employers already contribute to an industry-wide training levy arrangement, they are still required to pay the Apprenticeship Levy.”
Using your Apprenticeship Levy allowance
Employers who need to pay the Apprenticeship Levy are eligible for an allowance of £15,000 per tax year. This allowance can be used to reduce the amount of levy they owe. The allowance cannot be carried over to the next tax year. Employers can use their full annual allowance against the amount of levy owed, even if they start or stop being an employer partway through the tax year.
“The apprenticeship levy allowance provides employers with an opportunity to utilize funds for apprenticeship training and development, helping to nurture a skilled workforce.”
The allowance can be divided between different PAYE schemes or connected companies/charities, but the division must be reported to HMRC. It offers flexibility in allocating funds to various areas of the business where apprenticeship training is required. It ensures that employers can invest in the development of their workforce and reap the benefits of skilled apprentices.
The levy allowance only applies to English apprenticeships, as Scotland, Wales, and Northern Ireland have their own apprenticeship programs. However, employers with a presence in these regions should explore the apprenticeship funding options available to them, as investing in apprenticeships can bring valuable benefits to businesses across the United Kingdom.
With the allowance in place, employers have a clear path to utilize their funds effectively, fostering talent and driving growth through apprenticeship training. By strategically using their levy allowance, employers can maximize the impact of their apprenticeship programs and invest in the development of their workforce.
Work out what you owe
To determine the amount you owe for the Apprenticeship Levy, you can utilize HMRC’s Basic PAYE Tools. It provides a convenient way to calculate your payment accurately.
Here’s how you can calculate your levy amount:
- In the first month of the tax year:
Divide your Apprenticeship Levy allowance by 12 and subtract the result from 0.5% of your monthly pay bill.
- For each subsequent month:
Calculate 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.
Subtract the amount of levy already paid in the year to date.
If you start paying the levy partway through the tax year, calculate your allowance for the first month based on the number of months since the start of the tax year.
Using this straightforward calculation method, you can determine your Apprenticeship Levy amount with accuracy and confidence.
Reporting how much you owe
Employers are required to report their Apprenticeship Levy amount to HMRC each month through the Employer Payment Summary. This reporting is essential for ensuring compliance with the levy regulations.
When it comes to reporting, there are specific requirements that employers need to follow. At the start of the tax year, if the annual pay bill (including connected companies or charities) exceeded £3 million in the previous tax year or is expected to exceed £3 million in the current tax year, reporting must commence immediately.
Even if the pay bill unexpectedly surpasses £3 million during the year, reporting should start without delay. It is essential to note that reporting must continue until the end of the tax year, even if the annual pay bill turns out to be less than the £3 million threshold. Additionally, connected companies or charities must report their levy amount separately to ensure accurate records and compliance.
| Reporting Obligations | Requirements |
|---|---|
| Reporting Timeframe | Monthly, from the start of the tax year until the end of the tax year. |
| Threshold for Reporting | Annual pay bill exceeding £3 million in the previous tax year or expected to exceed £3 million in the current tax year. |
| Unexpected Increases | Immediate reporting if the pay bill unexpectedly surpasses £3 million during the year. |
| Connected Companies/Charities | Levy amount must be reported separately for accurate records and compliance. |
Reporting the Apprenticeship Levy amount ensures transparency and enables employers to fulfill their obligations while contributing to the growth of apprenticeships in the UK.
How to pay
Employers pay the Apprenticeship Levy every month as part of their PAYE bill. The levy payment can be made through the PAYE process and is payable alongside tax and National Insurance contributions.
If employers have overpaid the levy during the year, they may receive a refund as a PAYE credit. Apprenticeship Levy payments are deductible expenses for Corporation Tax.
In order to calculate the levy owed and report it accurately, employers should follow the steps below:
Step 1: Calculate the Levy
- Determine the monthly pay bill
- Apply the Apprenticeship Levy rate of 0.5% to the monthly pay bill
Step 2: Deduct the Allowance
- Employers are entitled to an allowance of £15,000 per tax year
- Subtract the allowance from the calculated levy amount
Step 3: Payment
Make the payment through the PAYE process, along with tax and National Insurance contributions. The levy payment will be deducted from the employer’s bank account based on their agreed payment frequency.
Employers should ensure that they complete their PAYE submissions accurately and on time to avoid any penalties from HMRC.
Here is an example of how the PAYE process works:
| Month | Monthly Pay Bill | Apprenticeship Levy | Payment |
|---|---|---|---|
| April | £50,000 | £250 | £9,000 (PAYE bill + Apprenticeship Levy) |
| May | £60,000 | £300 | £9,600 (PAYE bill + Apprenticeship Levy) |
Refunds and Credits
If employers have overpaid the levy during the year or made any errors in their calculations, they may be entitled to a refund as a PAYE credit. HMRC will carry out an end-of-year reconciliation to determine if a refund is due.
Specific sectors that need to pay Apprenticeship Levy
In addition to all sectors with an annual pay bill of over £3 million, there are specific rules for certain sectors regarding the payment of the Apprenticeship Levy. Franchises, off-payroll working, and short-lived companies must also comply with the levy if they meet the following criteria:
Franchises
Franchises operating in the UK are required to pay the Apprenticeship Levy. However, franchises have an annual allowance of £15,000 that can be used for all the franchises under their control. This allowance can help reduce the amount of levy owed and support apprenticeship training within the franchise network.
Off-payroll working
Off-payroll working refers to individuals working for a client through an intermediary, such as a limited company or a personal service company. These individuals may also fall under the scope of the Apprenticeship Levy if they are considered to be working in a manner similar to an employee and are liable for Class 1 secondary National Insurance contributions.
Short-lived companies
Short-lived companies, including special purpose vehicles, are subject to the Apprenticeship Levy if they are liable for Class 1 secondary National Insurance contributions. This ensures that even companies with a shorter lifespan or focused on specific projects contribute to apprenticeship funding.
It’s important for franchises, off-payroll workers, and short-lived companies to understand their obligations regarding the Apprenticeship Levy and make the necessary payments to support apprenticeship training in the UK.
Conclusion
The Apprenticeship Levy is a crucial tool that aims to increase apprenticeship opportunities in the United Kingdom. For employers with an annual pay bill exceeding £3 million, paying the levy is mandatory. However, this payment provides valuable benefits. Employers can utilize their levy funds to access apprenticeship training at subsidized rates, or they have the option to transfer up to 10% of their levy funds to other employers.
Additionally, employers are granted an allowance of £15,000 per tax year that can be used to reduce their overall levy payment. The allowance cannot be carried over to the next tax year and can be divided between different PAYE schemes or connected companies and charities as needed. Monthly calculations and reporting of the levy amount should be done through the Employer Payment Summary.
The levy payment is made on a monthly basis, accompanied by the PAYE bill. It is important to note that specific sectors, such as franchises, off-payroll working, and short-lived companies, have their own set of rules regarding the payment of the levy that employers must adhere to. The overarching objective of the Apprenticeship Levy is to promote the growth of apprenticeships and enhance the quality of training and education available to apprentices across the UK.
Source Links
- https://www.gov.uk/guidance/pay-apprenticeship-levy
- https://www.accaglobal.com/content/dam/ACCA_National/uk/emp/acca-apprenticeship-levy-guide-employers.pdf
- https://qualifications.pearson.com/content/dam/pdf/new-apprenticeships/101Insightfactsheets/Apprenticeships101_your-guide_to_the_apprenticeship_levy.pdf
