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Apprenticeship Levy

The Apprenticeship Levy made easy

It might seem a little daunting but The Apprenticeship Levy is actually
pretty easy to understand, if you know the basics:

  • The Apprenticeship Levy has been created by the government to encourage employers to take on more apprentices, as well as improving the quality of the apprenticeships themselves.
  • If your payroll is £3m or over, you must contribute to The Apprenticeship Levy.
  • This contribution is 0.5% of your total payroll – paid automatically through PAYE.
  • Everything you pay in Levy contributions is available in your Levy account to help pay for the training and assessment of your apprenticeships – but not recruitment costs.
  • Every pound you contribute after the first £15k is given a 10% government top-up when it goes into your Levy account.
  • Any unused funds expire after 24 months so use them or lose them.

All Levy spending and management is administered via the government’s Digital Apprenticeship Service (DAS) website. It’s easy to register and you’ll be able to register new apprentices, select approved training providers and see all your costs in one place.

The government has limits on the costs of training, so remember, if you choose a provider who costs more than their limit, you will have to make up the difference yourself.

How The Apprenticeship Levy adds up

The Apprenticeship Levy isn’t half as tricky to understand as some people think – and after reading this, everything should slot into place.

  • If your annual payroll is over £3m you have to pay the Levy
  • The Levy is 0.5% of your total payroll.
  • Levy contributions are taken automatically through PAYE
  • This money is then available in your Levy account to pay for your apprenticeship programme.
  • Everything after the first £15k is given a 10% government top-up.

Here’s an example:

If your payroll is £6m – your contribution is (0.5%) £30k.

But in your Levy account you’ll have £31,500 to spend on training – thanks to the 10% top up on all funds after the first £15k.

All eligible organisations must calculate the Levy owed from the first month of the tax year.

To calculate your first month of Levy, follow these two steps:

  1. Calculate your government offset per month (£15,000 / 12 = £1,250)
  2. Calculate 0.5% of your pay bill for that month and then subtract the government’s offset. For a monthly pay bill of £800,000 your sum is 0.005 x £800,000 – £1,250, totalling that month’s Levy to pay as £2,750.

The Employment Payment Summary (EPS) requires you to calculate the amount paid so far, each year as part of every subsequent month’s calculations. To do as such, follow these step-by-step instructions:

  1. Calculate 0.5% of your pay bill to date, from the start of the tax year. For example, for a company on the fourth month of the tax year with a monthly pay bill of £800,000 your total pay bill so far will be £800,000 x 4 = £3,200,000. 0.5% of this is 0.005 x £3,200,000 = £16,000.
  2. Subtract the government offset since the start of the tax year. Following the previous example, first calculate the amount of government offset (£1,250 x 4 = £5,000) and then subtract that from 0.5% of your total pay bill to date (£16,000 – £5,000 = £11,000). This gives you the total Levy owed so far this year.
  3. To find out how much you owe for this month’s Levy, subtract your total Levy paid this year from the total Levy owed this year. Finishing the example, up to the previous month the company would have paid £8,250 in Levy. Subtracting this amount from the total owed (£11,000) gives you £2,750, which is your total owed for this month.

Things to Note

  • This will have to be calculated and reported to HMRC through the Employer Payment Summary every month
  • If your Levy allowance is split over a group of connected companies, each individual organisation within the group will have to calculate and report their own amount of Levy owed.
  • You must re-calculate each month’s Levy as your pay bill is likely to fluctuate. Note that your pay bill includes bonuses. Additionally, you have 24 months to spend each month’s Levy, so it is important to keep track how much Levy is input to the fund so it does not expire.