Apprenticeship Levy
Who Needs to Pay
The Apprenticeship Levy is charged at 0.5% of an employer's annual pay bill. You are required to pay the levy each month if:
Your annual pay bill exceeds £3 million, or
You are connected to other companies or charities, and your combined annual pay bill exceeds £3 million
What Counts as Your Pay Bill?
Your annual pay bill includes all payments to employees that are subject to employers' Class 1 secondary National Insurance contributions — for example, wages, bonuses, and commissions.
Your pay bill must include payments to:
Employees earning below the secondary threshold and lower earnings limit
Employees under the age of 21
Apprentices under the age of 25.
Your pay bill must not include:
Earnings of employees under 16
Earnings of employees not subject to UK National Insurance contributions
Earnings on which Class 1A National Insurance is payable, such as benefits in kind
The £15,000 Levy Allowance
Each employer receives a £15,000 annual allowance, which reduces the amount of Apprenticeship Levy payable. This means that in practice, only employers with a pay bill in excess of £3 million (where 0.5% exceeds £15,000) will have a levy liability.
The allowance cannot be carried over to the next tax year. Where an employer is connected to other companies or charities, the group shares a single £15,000 allowance among them.
You can split the allowance between your PAYE schemes or connected companies, but the allocation must be reported at the first point of paying the levy and cannot be changed during the tax year.
Working Out What You Owe
For the first month of the tax year:
Divide your annual levy allowance by 12
Subtract this figure from 0.5% of your monthly pay bill.
For each subsequent month, the calculation is cumulative:
Work out your total pay bill for the year to date
Add up your monthly levy allowances for the year to date
Subtract your cumulative allowance from 0.5% of your year-to-date pay bill
Deduct the levy already paid in the tax year to date.
The cumulative approach ensures that any fluctuations in the monthly pay bill are smoothed out over the course of the year.
Reporting and Paying
The Apprenticeship Levy is reported and paid monthly as part of your PAYE bill, using the Employer Payment Summary (EPS). Each EPS must include:
The annual levy allowance allocated to that PAYE scheme
The total Apprenticeship Levy owed to date in the current tax year.
You must continue reporting even if your pay bill is less than £3 million for the year. If you overpay during the year, you will receive a refund as a PAYE credit. Apprenticeship Levy payments are a deductible expense for Corporation Tax purposes.
You must retain records of all information used to calculate your levy payments for at least three years after the end of the relevant tax year.
Final Thoughts
Apprenticeship Levy interacts directly with your monthly PAYE submission, and by getting this right, can help to avoid any unnecessary underpayments and administrative burden or corrections later. If you are unsure whether this applies to your business or would like to review your current position, please get in touch.