What is the Apprenticeship levy and how does it work?

The Apprenticeship levy starts on 6 April 2017.


The levy will be set at 0.5% of an employer’s ‘pay bill’ (see below) and is to be paid through the PAYE system. It will only be paid on any ‘pay bill’ in excess of £3 million. This is achieved by employers having an allowance of £15,000 to offset against their levy payment.

The £15,000 allowance is not a cash payment and employers do not have to apply for it, it will simply be offset against an employer’s monthly levy liability i.e. for a single company £1,250 per month.

It applies to all UK employers in all sectors.

The ‘pay bill’ refers to the total amount of employees’ earnings on which the employer is liable to pay class 1 secondary NICs. ie wages/salaries, bonuses, commissions and any other money employees make from employment. It does not include benefits in kind.

Connected employers

An employer that is connected to other employers by virtue of being in a group of companies, will only have one £15,000 for all employers within the group. Employers can decide how to share the annual allowance between themselves.

Reporting the levy

Employers must report their levy liabilities to HMRC if

  • Their pay bill was over £3 million in tax year 2016/17
  • They believe their annual pay bill will be over £3 million in tax year 2017/18 or
  • The levy allowance has been shared across a group of companies and the share of their allowance is such that they know they will have a levy liability.

Employers must report their levy due each month to HMRC within 14 days after the end of each tax month and once they start reporting, they must continue to do so until the end of the tax year.

How to access funds from the apprenticeship levy

There is a set procedure for accessing the levy you have paid in order to fund training for apprentices and it involves a number of steps, including registering online for the apprenticeship levy service and accepting an agreement with the Skills Funding Agency. Once registered the online service enables you to do the following:

  • Select an apprenticeship framework or standard
  • Choose the training provider or providers you want to deliver the training
  • Choose the organisation that will assess your apprentices
  • Post apprenticeship vacancies
  • Set the price agreed with the training provider
  • Pay for apprenticeship training and assessment

The government tops up your levy amounts by 10%, however there is a two year expiry date on using the contributions after which they will be lost

If you would like to discuss any issue arising from this article, please contact Anne Rose, Head of Tax on 0845 177 5500 or use our on-line contact form.

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