The Apprenticeship Levy

Apprenticeship Levy

What is the Apprenticeship Levy?


The Apprenticeship Levy was first announced at Summer Budget 2015, and at Autumn Statement 2015 it was announced it would come into affect in April 2017. It is a levy on UK employers to fund new apprenticeships, but will only be paid by UK companies that have an annual pay bill of more than £3 million.

The levy will be charged on their pay bill at a rate of 0.5%, it will be payable through Pay As You Earn (PAYE) and will be payable alongside income tax and National Insurance.

Each employer will receive an allowance of £15,000 to offset against their levy payment, so in effect it will only be paid on a proportion of the pay bill (the amount that exceeds £3 million.) Companies that have more than one payroll will only be able to claim the allowance once.

Who will this new levy affect?
The companies that are affected must pay a levy, it will affect employers in all sectors, but less than 2% of companies will need to pay the levy. If your company is affected by these new requirements, then you need to ensure you are ready for this change in April 2017.

Companies will need to notify HM Revenue & Customs (HMRC) each month whether they are eligible to pay the levy. You will need to calculate the size of the levy you need to pay, and declare this to HMRC, you also need to include the levy in your usual PAYE payment. This declaration will be made via your Employer Payment Summary (EPS).

Once companies based in England have paid the levy, they will be able to access funds for provision of apprenticeships via a digital apprenticeship service account. By 2020, it is anticipated that all companies will be able to access this account, including those not subject to the levy.


How to Calculate Your Levy Charge

Although eligibility to pay the levy is based on the size of your annual pay bill, the levy will be paid on a monthly basis. This means you need to carry out the following calculations, you can also use HMRC’s basic tools to help you figure out the calculation:

For the first tax month of the year 

• Divide your Apprenticeship Levy allowance by 12 
• Subtract this figure from 0.5% of your monthly pay bill 

For subsequent months: 

• Calculate your total pay bill for the year to date 
• Calculate the total of your monthly levy allowances for the year to date 
• Subtract the total of these levy allowances from 0.5% of your total pay bill for the year to date 
• Subtract the amount of levy payments you have made for the year to date. 

Payroll Reporting Requirements

If your levy payment changes from month to month, this must be declared on the next EPS following the change.

If you make a mistake regarding payment of the levy, you will need to declare this on an additional EPS at the end of the tax year, and make your payment shortfall.

Records of all information you use to calculate your levy payment must be retained for at least three years following the end of the tax year to which they relate.


The introduction of the Apprenticeship Levy is just the latest in a series of changes that have made administering payroll more complex. If you currently administer your payroll in-house, then now might be the time to consider outsourcing it to an external payroll provider that specialises in this area. You can see the benefits about outsourcing payroll in this short article by following this link.

If you want any more help regarding the information discussed then please get in touch, you can find all our contact details at www.chrysalispayroll.co.uk.