When you have to pay Apprenticeship Levy and how to report your payments.
When you need to pay it
As an employer, you’ll have to pay Apprenticeship Levy each month from 6 April 2017 if you:
- have an annual pay bill of more than £3 million
- are connected to other companies or charities for Employment Allowance which in total have an annual pay bill of more than £3 million
Your annual pay bill is all payments to employees that are subject to employer Class 1 secondary National Insurance contributions (NICs) such as wages, bonuses and commissions. You 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 does not include:
- earnings of employees under the age of 16
- earnings of employees who are not subject to UK NICs legislation
- earnings on which Class 1A NICs are payable, such as benefits in kind
How much you need to pay
Employers who are not connected to another company or charity will have an Apprenticeship Levy allowance of £15,000 each year.
The allowance reduces the amount of Apprenticeship Levy you have to pay by £15,000 across the year. This means that only employers with an annual pay bill of more than £3 million will pay the levy.
You cannot carry over any unused allowance into the next tax year.
Connected companies or charities will only have one £15,000 allowance to share between them.
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.
How to allocate your allowance
Your Apprenticeship Levy allowance of £15,000 can be allocated between:
- all your PAYE schemes
- your connected companies or charities
You can decide how to split the allowance between your PAYE schemes or with your connected companies or charities. You’ll need to report how you’ve allocated your allowance the first time you have to pay Apprenticeship Levy. You cannot change your share of the allowance during the tax year.
You must continue to apply the levy allowance that was allocated at the beginning of the tax year if, part way through the year:
- you become a connected employer (such as by merging with or acquiring another company)
- the structure of your group of connected companies or connected charities changes (such as by demerging with another company)
You can decide how you allocate your levy allowance across your connected companies or charities at the start of the next tax year.
Public bodies each get a full Apprenticeship Levy allowance as they are not considered to be connected companies.
NHS trusts and other health service bodies (such as Scottish Health Boards, Welsh Local Health Boards or Irish Health and Social Care Trusts) are considered to be companies and therefore have to follow the connected companies rules.
Public bodies which are charities must follow the rules for connected charities.
Calculate 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:
- 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 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 begin paying the levy part way through the tax year, you’ll need to calculate how much of your annual allowance has been accumulated in the current year. Divide your full annual allowance by 12 and 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.
Industry training levy contributions
You’ll still need to pay Apprenticeship Levy even if you already contribute to an industry-wide training levy arrangement, for example the Construction Industry Training Board Levy.
Report how much you owe
From 6 April 2017, you’ll need to tell HMRC how much Apprenticeship Levy you owe each month:
- from the start of the tax year if:
- your annual pay bill (including any connected companies or charities) in the previous tax year was more than £3 million
- you think your annual pay bill (including any connected companies or charities) for the tax year will be more than £3 million
- if your annual pay bill (including any connected companies or charities) unexpectedly increases to more than £3 million - start reporting when this happens
If you’ve started paying Apprenticeship Levy, you’ll need to continue reporting it until the end of the tax year even if your annual pay bill turns out to be less than £3 million.
Connected companies or charities will each need to tell HMRC how much Apprenticeship Levy they owe.
Report your Apprenticeship Levy each month using your Employer Payment Summary (EPS) and include the following:
- the amount of the annual Apprenticeship Levy allowance you’ve allocated to that PAYE scheme
- the amount of Apprenticeship Levy you owe to date in the current tax year
You do not need to report Apprenticeship Levy on your EPS if you have not had to pay it in the current tax year.
You must keep records of any information you have used to calculate your levy payment for at least 3 years after the tax year which they relate to.
Changes to your pay bill
Report any changes to the Apprenticeship Levy as a result of changes to your pay bill on your next EPS.
If you find errors in your total annual pay bill at the end of the tax year, you must submit an extra EPS with the correct Apprenticeship Levy for the full tax year and pay what you owe.
Employers with modified PAYE schemes
If you run a modified PAYE scheme you’ll need to account for NICs as usual. Use a best estimate of all earnings that are subject to Class 1 secondary NICs to check if you need to pay the Apprenticeship Levy. You’ll need to submit an EPS each month using these estimated figures.
At the end of the tax year, you’ll also need to:
- check your estimated pay bill against the actual figures for the tax year
- submit an additional EPS to correct any difference and pay any Apprenticeship Levy owed
How to pay
You’ll need to pay the Apprenticeship Levy each month through the PAYE process in the same way you pay Income Tax or National Insurance contributions.
If you’ve overpaid Apprenticeship Levy during the year, you’ll receive a refund as a PAYE credit.
Apprenticeship Levy payments are a deductible expense for Corporation Tax.
When the levy applies in specific sectors
Franchises with an annual pay bill of over £3 million (including any connected companies or charities) will have to pay the levy. You’ll have an annual allowance of £15,000 for all of the franchises under your control. You can choose to share the allowance across the franchises you control or across your PAYE schemes.
Off-payroll working in the public sector
Payments from a public sector employer to a personal service company, a partnership or other individual which are subject to off-payroll working reforms must be included in the public sector employer’s pay bill. This is because the public sector employer will be liable to pay the Class 1 NICs for workers engaged through such intermediaries from April 2017.
These changes do not apply for services provided through intermediaries such as a personal service company to clients in the private sector.
Short lived companies such as special purpose vehicles will have to pay the levy if they’re liable for Class 1 secondary NICs. You’ll have a full £15,000 allowance if the special purpose vehicle has been set up part way through the tax year. You’ll have to check whether you’re connected to another company or charity at the start of the following tax year.
Managed service companies
If you’re a managed service company you’ll have to pay the levy if you have an annual pay bill of over £3 million. If you’re connected to another employer, you may have to pay the levy if your pay bill is less than £3 million.
Employment or recruitment agencies
You’ll need to pay the levy if all the following apply:
- you supply labour (including subcontractors) to a client
- you pay Class 1 secondary NICs on the earnings of those workers
- your pay bill exceeds £3 million (including any connected companies or charities)
If you’re in a joint venture partnership where 2 companies each have a 50% share in a further company, neither company will have overall control. As a result, the joint venture would not be connected to any other companies. The 2 companies and the joint venture would therefore each be entitled to their own levy allowance of £15,000.
Other types of joint ventures will get a full £15,000 allowance if they’ve been set up part way through the tax year. They’ll need to check if they’re connected to another employer at the start of the next tax year to work out their allowance for the following year.
For voluntary-aided schools, foundation schools, free schools and academies, the governing body is the employer. Each governing body will be entitled to an allowance of £15,000.
For other maintained schools, the local authority is the employer. The local authority remains legally responsible for payment of the Apprenticeship Levy for schools under their control, even if they’ve delegated responsibility for payroll including payment of Class 1 secondary NICs. Each local authority has an annual allowance of £15,000.
The employer for faith schools will be the local authority if the school is voluntary-controlled, otherwise it will be the governing body.
Multi-academy trusts will get a single annual allowance of £15,000.
If a school becomes a voluntary-aided school, foundation school, free school or academy part way through a tax year, the academy’s governing body will be responsible for the Apprenticeship Levy from this point and get a full allowance of £15,000.
Technical information with worked examples is available in the Apprenticeship Levy manual for HMRC staff.
Contact HMRC if you have any questions about Apprenticeship Levy.