Academies - Guidance Notes on The Apprenticeship Levy

17 March 2017

The apprenticeship levy requires all employers operating in the UK, with an annual pay bill of over £3million, to pay a 0.5% levy on their pay bill each month. It comes into effect from 6 April 2017 and will apply to both public and private UK employers across all sectors.

The levy was announced by the Government in July 2015, reformed to encourage employers to offer apprenticeships in order to meet their skills and workforce requirements via funded training. The levy is intended to help fund 3 million apprenticeships by 2020.

Please click here to download our full Guidance Notes for Academies.

Who needs to report the apprenticeship levy?

Employers only need to report the apprenticeship levy to HMRC if they are likely to have a liability to pay it. This will be where their annual pay bill for 17/18 will exceed £3m.

The levy is an annual charge, although it is reported on and paid monthly. The bill is based on the employers’ pay bill which is the total amount of earnings subject to Class 1 secondary NICs, including all earnings below the secondary threshold. This includes:

  • Wages
  • Bonuses
  • Commissions
  • Some employer pension contributions that can be subject to class 1 NICs in some circumstances, therefore these would be included
  • Earnings of employees under the age of 21
  • Apprentices under the age of 25

The pay bill figure should not include any earnings where the employer is not liable to pay Class 1 secondary NICs. So the pay bill should not include:

  • Earnings of employees under the age of 16
  • Earnings of employees not subject to UK NICs legislation
  • Any payment which is not considered earnings for NIC purposes or is officially disregarded, for example, pension payments which are not subject to NICs
  • Benefits in kind that are liable to Class 1A NICs
  • Payments to employees working abroad that are making employee only contributions.

If the pay bill exceeds £3million, the 0.5% levy is applied.

In circumstances where agency workers are used and the recruitment agency is the workers employer then these workers will not contribute to your wage bill and you will not pay the levy on their pay.

The calculation

The levy is charged at 0.5% of the annual pay bill, with an allowance of £15,000 per year. The allowance is accrued monthly.

A school with a wage bill of £5,000,000 / monthly pay bill of £416,667. 
The £15,000 allowance apportioned across the year such that they receive £1,250 each month.

The levy due to be paid per month will be:

Levy (£417k x 0.5%) = £2,083 
Monthly allowance (£15k/12) = (1,250) 
Levy payable = £833

The calculations are done on a monthly, cumulative basis through the payroll system.

Employers with more than one PAYE scheme can share the allowance across these PAYE schemes in a way that best suits their business.

As mentioned before, the levy is paid monthly and this is done at the same time as the employer pays any income tax and earnings related contributions that are due i.e. – you should do this by 19 (or 22 if you report electronically) of the following month. Any apprenticeship levy payment to HMRC will be allowable for Corporation tax.

The understanding is that payroll software will be updated to calculate the levy liability. HMRC has issued guidance for software developers. Clients should be encouraged to check with their software providers whether this is the case.

Please click here to download our full Guidance Notes for Academies.

For further information, or an informal discussion on the implications or mechanics of the Apprenticeship Levy, please do not hesitate to contact us.