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HMRC internal manual

Apprenticeship Levy Manual

Paying and reporting the levy: how to calculate an employer’s Apprenticeship Levy liability manually

Example 1 – Single employer with regular pay bill and one PAYE scheme

A single employer has a regular pay bill of £300,000 each month (£3.6m for the tax year), with the full Apprenticeship Levy allowance of £15,000 used against a single PAYE scheme.

Month 1

£300,000 x 0.5% = £1,500 levy

Cumulative levy allowance = £1,250 (one-twelfth of £15,000)

Levy payable month 1 £1,500 - £1,250 = £250

Month 2

£600,000 (£300,000 + £300,000) x 0.5% = £3,000

Cumulative levy allowance £2,500

Levy payable to month 2 is £3,000 - £2,500 = £500

Levy paid in month 2 = levy payable to month 2 – levy paid to month 1 = £500 – £250 = £250

And so on until month 12

£3.6 million (£300,000 x 12) x 0.5% = £18,000

Cumulative levy allowance £15,000

Levy payable to month 12 is £3,000

Levy paid in month 12 = levy payable to month 12 – levy paid to month 11 = £3,000 – £2,750 = £250

This means that the employer pays £250 each month in levy which totals £3,000 over the year.

Example 2 – Single employer with multiple PAYE schemes

A single employer has a regular pay bill of £1m each month (£12m for the tax year), with full Apprenticeship Levy allowance of £15,000. The employer has 5 PAYE schemes and each PAYE scheme has a monthly pay bill of £200,000 (£2.4m for the tax year). The employer decides to share the annual £15,000 levy allowance equally across all 5 schemes so that each scheme has an annual allowance of £3,000.

Month 1

£200,000 x 0.5% = £1,000

Cumulative levy allowance = £250 (one-twelfth of £3,000)

Levy payable month 1 £1,000 - £250 = £750

Month 2

£400,000 (£200,000 + £200,000) x 0.5% = £2,000

Cumulative levy allowance = £500

Levy payable to month 2 is £2,000 - £500 = £1,500

Levy paid to month 2 = levy payable to month 2 – levy paid to month 1 = £1,500 - £750 = £750

And so on until month 12

£2.4 million (£200,000 x 12) x 0.5% = £12,000

Cumulative levy allowance £3,000

Levy payable to month 12 is £9,000

Levy paid in month 12 = levy payable to month – levy paid to month 11 = £9,000 - £8,250 = £750

This means that the employer pays £750 per pay scheme per month. The total levy payable per scheme over the course of the tax year is £9,000.  The total levy payable by the employer across all schemes is £45,000.

Example 3 – Connected companies with differing pay bills

A group of 3 connected companies (Company A, Company B and Company C). The £15,000 levy allowance is shared between Company A and Company B so each have an annual levy allowance of £7,500. As a consequence, Company C has a levy allowance of £0. Company A and Company B have monthly pay bills of £250,000 (an annual pay bill of £3 million). Company C has a monthly pay bill of £100,000 (an annual pay bill of £1.2 million).

The levy to be paid for Company A and Company B will be calculated as follows.

Month 1

£250,000 x 0.5% = £1,250 levy

Cumulative levy allowance = £625 i.e. one-twelfth of £7,500

Levy payable month 1 £1,250 - £625 = £625

Month 2

£500,000 (£250,000 +£250,000) x 0.5% = £2,500

Cumulative levy allowance £1,250

Levy payable to month 2 is £2,500 - £1,250 = £1,250

Levy paid in month 2 = levy payable to month 2 – levy paid to month 1 = £1,250 - £625 = £625

And so on to month 12

£3 million (£250,000 x 12) x 0.5% = £15,000

Cumulative levy allowance £7,500

Levy payable to month 12 = £15,000 - £7,500 = £7,500

Levy paid in month 12 = levy payable to month 12 – levy paid to month 11 = £7,500 - £6,875 = £625

The levy to be paid for Company C will be calculated as follows.

Month 1

£100,000 x 0.5% = £500

Cumulative levy allowance £0

Levy payable month 1 £500 - £0 = £500

Month 2

£200,000 (£100,000 + £100,000) x 0.5% = £1,000

Cumulative levy allowance £0

Levy payable to month 2 £1000

Levy paid in month 2 = levy payable to month 2 – levy paid to month 1 = £1,000 - £500 = £500

And so on to month 12

£1.2 million (£100,000 x 12) x 0.5% = £6,000

Cumulative levy allowance £0

Levy payable to month 12 £6,000

Levy paid in month 12 = levy payable to month 12 – levy paid to month 11 = £6,000 - £5,500 = £500

Example 4 – Single employer who plans to expand workforce which will take pay bill over £3 million

Company D is not connected to any other companies. It had an annual pay bill of £2 million in the tax year 2016 to 2017. It plans to expand its workforce in the tax year 2017 to 2018. It believes this expansion will take its annual pay bill over £3 million. Company G must report its levy liability at the start of the tax year 2017 to 2018.

Example 5 – Single employer whose pay bill increases unexpectedly over the tax year

Company E is not connected to any other companies. It had an annual pay bill of £2.5 million in the tax year 2016 to 2017, and had no reason to believe that its pay bill would increase in the tax year 2017 to 2018, so there is no need for Company E to report and pay the levy in April 2017.  However, in October 2017 Company E’s pay bill increases significantly, leading the company to believe that its annual pay bill for the year will exceed £3 million. Company E must therefore begin reporting and paying the levy.

Company E will still be entitled to the full annual levy allowance of £15,000, pro-rated over the 12 months of the tax year. Because Company E does not begin reporting the levy until October, its pro-rated annual levy allowance for October will be £8,750 (£1,250 x 7 – because October is the seventh month in the tax year).

Example 6 – Company that starts trading part way through the tax year

Company F starts up in August. It believes its annual pay bill for that tax year will be over £3 million, so it must begin reporting and paying the levy when it starts up in August. Even though Company F started up mid-way through the tax year, it is still entitled to the full annual levy allowance of £15,000, pro-rated over the 12 months of the tax year. Therefore Company F’s pro-rated levy allowance for August will be £6,250 (£1,250 x 5).

Example 7 – Company that stops trading part way through the tax year

Company G stops trading in December. It is not connected to any other company. It has been reporting and paying the levy since the start of the tax year. Even though Company G does not trade for the full tax year, it is still entitled to the full annual levy allowance of £15,000. In November (the month before Company G cease to trade), Company G’s pro-rated cumulative levy allowance will be £10,000 (8 x £1,250). However, because Company G ceases to trade in December, levy allowance for December will be £15,000, not £11,250 (9 x £1,250).