Guidance: Pay Apprenticeship Levy

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:

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:

• franchises
• off-payroll working
• short-lived companies
• managed service companies
• employment or recruitment agencies
• joint ventures
• schools

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:

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

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).

Employers with modified PAYE schemes

If you run a modified PAYE scheme you need to account for National Insurance contributions as usual. Use a best estimate of all earnings that are subject to Class 1 secondary National Insurance contributions to check if you need to pay the Apprenticeship Levy. You need to submit an Employment Payment Summary each month using these estimated figures.

At the end of the tax year, you also need to:

• check your estimated pay bill against the actual figures for the tax year
• submit an extra Employment Payment Summary to correct any difference and pay any Apprenticeship Levy owed

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.

Employers not connected to another company or charity

Employers not connected to another company or charity will have an Apprenticeship Levy allowance of £15,000 each year.

If you are not connected to any other employer and your pay bill is not over £3 million you will not need to pay the levy.

Employers connected to other companies or charities

Connected companies or charities will only have one £15,000 allowance to share between them.

If you are connected to any other employer and your combined pay bill is below £3 million, you will not need to pay the levy.

How to divide your allowance

Your Apprenticeship Levy allowance of £15,000 can be divided 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 must report how you’ve divided 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 divided 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 divided your levy allowance across your connected companies or charities at the start of the next tax year.

You cannot change where the allowance has been divided across connected companies or charities at the end of the tax year.

Employers with multiple PAYE schemes who do not use their full Apprenticeship Levy allowance during the year, can change how this has been divided at the end of the tax year. This can be done to offset any unused allowance against another of your schemes.

NHS trusts and other health service bodies (such as Scottish Health Boards, Welsh Local Health Boards and Health and Social Care Trusts in Northern Ireland) are considered to be companies and have to follow the connected companies’ rules.

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:

1. Divide your Apprenticeship Levy allowance by 12.

2. Subtract this figure from 0.5% of your monthly pay bill.

For each of the following months:

1. Work out your total pay bill for the year to date.

2. Add up your monthly levy allowances for the year to date.

3. Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date.

4. 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:

1. Work out how much of your annual allowance has been accumulated in the current year.

2. Divide your full annual allowance by 12.

3. 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.

Reporting how much you owe

You must report to HMRC how much Apprenticeship Levy you owe each month. You must report this at 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 must continue reporting it until the end of the tax year even if your annual pay bill turns out to be less than £3 million.

Report your Apprenticeship Levy each month using your Employer Payment Summary and include the amount of the:

• annual Apprenticeship Levy allowance you’ve divided to that PAYE scheme
• Apprenticeship Levy you owe to date in the current tax year

You do not need to report Apprenticeship Levy on your Employment Payment Summary if you have not had to pay it in the current tax year.

Record keeping

You must keep records of any information you have used to work out your levy payment for at least 3 years after the tax year which they relate to.

Reporting changes to your pay bill

Report any changes to the Apprenticeship Levy as a result of changes to your pay bill on your next Employment Payment Summary.
If you find errors in your total annual pay bill at the end of the tax year, you must submit an extra Employment Payment Summary with the correct Apprenticeship Levy for the full tax year and pay what you owe.

How to pay

You pay Apprenticeship Levy every month as part of your PAYE bill.
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.

Specific sectors that need to pay Apprenticeship Levy

There are specific rules for certain sectors but all must pay the levy if they have an annual pay bill of over £3 million (including any connected companies or charities).

Franchises

Franchises have an annual allowance of £15,000 for all 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

You must include payments to intermediaries, such as a personal service company, a partnership or other individual, which are subject to the off-payroll working rules. This applies to payments for services provided through intermediaries to:

• public authorities (from April 2017)
• medium and large-sized clients outside the public sector (from April 2021)

These payments are treated as employment income and subject to Class 1 National Insurance contributions.

This does not apply to payments for services provided through intermediaries to private sector clients that are small or have no UK connection.

Short-lived companies

Short lived companies such as special purpose vehicles will have to pay the levy if they’re liable for Class 1 secondary National Insurance contributions. You’ll have a full £15,000 allowance if the special purpose vehicle has been set up part way through the tax year. You must 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 and you’re connected to another employer, you may also have to pay the levy if your pay bill is less than £3 million.

Employment or recruitment agencies

You must pay the levy if you:

• supply labour (including subcontractors) to a client
• pay Class 1 secondary National Insurance contributions on the earnings of those workers

Joint ventures

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.

Schools

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 National Insurance contributions. 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.