The £15,000 levy allowance has been put in place to ensure that only employers who can afford it, have to invest in apprentices (or write off the levy as a tax).
If your annual wages bill is less than £3 million you won’t have to pay the levy.
If you’re a levy payer, you will need to declare this to HRMC. You will then be invited to open a Digital Apprenticeship Service Account.
Each month a twelfth of your annual allowance (£1,250) is added to your account (which also receives your levy training funds).
If 0.5% of that month’s wages bill is less than £1,250 you won’t have to pay the levy. Any unused allowance will carry over to the next month(s) in that tax year.
For example, if your company only used £1,000 of your levy allowance in month A, alongside not paying the levy for that month, your allowance would also be £1,500 for month B.
However, if 0.5% of your payroll bill worked out as £2,000 in month A and month B, you’d have to notify and pay HMRC £750 in month A and £750 in month B.
How to calculate how much levy your company might pay.
If your annual pay bill is over £3 million, you can use HMRC’s Basic PAYE Tools to automatically help you work out how much you need to pay.
If you have to begin paying the levy part-way through the tax year, you’ll need to:
- calculate how much of your annual levy allowance has been accumulated in the current year
- divide your full annual allowance (£15,000) 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.
These are the calculations we’ve used in the examples which follow:
For the first month of the tax year:
- Divide your Apprenticeship Levy allowance (£15,000) by 12.
- Subtract this figure from 0.5% of your monthly pay bill.
For each of the following months:
- Enter 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.
- What’s left, is what you owe.
Take care if your payroll is sometimes greater than £250k a month
If your annual payroll bill is nearly £3 million and you employ seasonal workers, you will need to declare and pay the levy for the months where your payroll bill is greater than £250,000.
The government recommends that 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.
If at the end of the year your total payroll is less than £3 million, you will get a rebate through PAYE.
Example 1: An employer who has to pay the levy some months
Pier Activities Ltd has a fluctuating monthly pay bill of £250,000 – £500,000
Month 1 pay bill: £250,000
0.5% of monthly pay bill: £1,250
Monthly levy allowance: £1,250
Month 1 levy due (£1,250-£1,250) = £0 – No levy paid
Month 2 pay bill to date: £750,000 (£500,000+£250,000)
Month 2 0.5% of pay bill to date: £3,750
Month 2 levy allowance to date: £2,500
Month 2 levy due (£3,750-£2,500)-£0 = £1,250- Levy paid
Example 2: An employer who does not have to pay the levy
An employer with an annual pay bill of £2,000,000:
Levy sum: 0.5% x £2,000,000 = £10,000
Subtracting annual levy allowance: £10,000 – £15,000 = £0 annual levy payment
Industry training levy contributions
If you already contribute to an industry-wide training levy arrangement (for example, the Construction Industry Training Board Levy) you’ll still need to pay the Apprenticeship Levy.
Make sure you check with your training board as they might have provisions in place to prevent you from paying twice. For example, the CITB has agreed a temporary transition package for firms paying both levies in 2017/18.
What defines a payroll?
It’s worth noting that HMRC defines a payroll as total employee earnings subject to class 1 secondary NIC’s.
That means it includes any remuneration or profit coming from employment, such as wages, bonuses, commissions, and pension contributions that you pay NICs on.