PAYE56110 - Employer returns: apprenticeship levy: apprenticeship levy allowance

Employers who are not connected to another company or charity have an Apprenticeship Levy allowance of £15,000 each year. The Apprenticeship Levy is charged at 0.5% of an employer’s annual pay bill. The Apprenticeship Levy allowance of £15,000 means that only employers with an annual pay bill of more than £3 million pay the levy. This is because 0.5% of an employer’s £3 million pay bill is £15,000, which is fully removed by the £15,000 Apprenticeship Levy allowance.  

Connected companies or charities have only one £15,000 annual levy allowance to share between them. Connected employers must decide on their allocation of the annual levy allowance at the start of the year. Once the allocation of the allowance has been agreed, this cannot be changed for the remainder of the tax year, unless their share of the allowance has been inputted incorrectly.

If an employer has more than one PAYE scheme they can choose to share the allowance across these PAYE schemes in a way that suits them best. They will notify HMRC of the split with their first return of Apprenticeship Levy, which will usually be at the beginning of the tax year. Employers will do this using the Employer Payment Summary (EPS). 

Once an employer has decided on the split, that split cannot be changed for the remainder of the tax year, unless the split has been inputted incorrectly.

If an employer starts-up during the tax year or goes into liquidation during the tax year, they can still offset  the full annual Apprenticeship Levy allowance against their levy liability for the part of the tax year that they operate. 

Unused levy allowance cannot be carried over into the next tax year.

A twelfth of an employer’s annual Apprenticeship Levy allowance can be claimed in each month of the tax year on a cumulative basis. An example of how the cumulative allowance will work:

£15000/12 Months = £1250

Month 1 - £1250

Month 2 - £1250 + £1250 = £2500

Month 3 - £1250 + £1250 + £1250 = £3750

And so on to Month 12

Month 12 £1250 x 12 = £15000

The cumulative nature of the allowance means that, even if a pay bill increases, 'carried over' allowance may mean that an employer does not have to pay anything in levy until they have used up the entirety of their allowance.

Employers can report and pay the Apprenticeship Levy as part of the normal RTI payroll process by using the Employer Payment Summary (EPS) within their software package or within Basic PAYE Tools (BPT). The EPS includes field entries for the Apprenticeship Levy due year to date and the annual allowance amount allocated to the PAYE scheme.

Note: Employers must send HMRC the Levy due net of the Apprenticeship Allowance so no calculation is done by HMRC. Payroll software and HMRC's BPT are available to support and enable employers to do this. Also, as the levy allowance can be split across schemes it is not possible for HMRC to calculate whether the levy paid is correct solely from information on ETMP. Responsibility for calculating the levy due lies with the employer.