The levy is set at 0.5% of your pay bill, paid monthly through PAYE. Your pay bill is based on the total amount of earnings subject to Class 1 secondary employers National Insurance contributions (NIC). Although earnings below the secondary threshold are not counted when calculating an employer’s NIC, they are included for the purposes of calculating the amount of levy the employer needs to pay.
Earnings in scope for the levy include any remuneration or profit coming from employment of all staff (including directors), such as wages, bonuses, commissions, and pension contributions that you pay Class 1 secondary employers NIC on. The levy is not charged on other payments such as benefits in kind and reimbursed expenses.
The government says that any UK employer, in any sector, with a pay bill of more than £3 million per tax year pays the levy on a total pay bill over £3 million. However, the levy will be a monthly deduction, so in reality these costs are taken in any month where your pay bill is over £250,000. If your pay bill in that tax year is below £3 million any levy deductions will be reimbursed.
You will hear talk of an ‘allowance’ of £15,000 per tax year to offset against your levy liability. This is confusing – all it means is that you only make levy payments on your pay bill in excess of £3 million per tax year. This ‘allowance’ is available on a monthly basis.
Employers in England who pay the levy and participate in apprenticeship programmes receive more than they pay into the levy, through a monthly 10% top-up to their account.
The levy is an allowable expense for corporation tax purposes.
Using your levy payments
Levy payments can be used to fund apprenticeships right across your organisation, not just for new entrants. So staff seeking career progression could be eligible for a supervisory or management apprenticeship at level 3 and 4 or a level 5 or Level 6 degree apprenticeship for senior management.
Levy funds can be used for:
- Apprenticeship training with an approved training provider.
- End Point Assessment services from a registered EPAO provider.
Funds cannot be used for:
- Wages
- Statutory licences to practise
- Travel and subsidiary costs
- Managerial costs
- Traineeships
- Work placement programmes
- The costs of setting up an apprenticeship programme.
Paying the levy
Your payroll department calculates, reports and pays your levy to HMRC, through the Pay as You Earn (PAYE) process alongside Income Tax and National Insurance.
Single employers with multiple PAYE schemes are added together in levy calculations.
Connected employers – The government allows employers to share one allowance between employers who are in connected ownership or control (for example groups of companies or joint ventures).
Here’s an example of how the levy is calculated
Levy Paying Employer
Employer of 250 employees, with an average gross salary of £20,000
Pay bill: 250 x £20,000 = £5,000,000
Levy entry point: = £3,000,000
Therefore Levy payable on £2,000,000
Levy sum: 0.5% x £2,000,000 = £10,000
£10,000 annual levy payment
Non-Levy Employer
Employer of 100 employees, with an average gross salary of £20,000
Pay bill: 100 x £20,000 = £2,000,000
Levy entry point: = £3,000,000
£0 annual levy payment.
Getting out more than you put in
Employers who pay the levy and are committed to apprenticeship training are able to get out more than they pay in to the levy.
The government applies a 10% top-up to monthly funds entering levy paying employers’ accounts, for apprenticeship training in England.
Example:
Employer has £12,000 annually entering their levy account
Monthly account funding = £1,000
Top up: 10% x £1,000 = £100
Levy monthly account increase: £1,000 + £100 = £1,100
£13,200 annually to spend on Apprenticeships.
The English Apprenticeship System
Education and training is a devolved policy, which means that authorities in each of the UK nations manage their own apprenticeship programmes.
In England your levy payments are recorded on the Apprenticeship Service website where you can access your account at any time. If you need help setting this up just let us know.
You’ll get the same proportion of your levy payment to spend in England as the proportion of your pay bill paid to employees living in England, this is called the ‘English percentage’.
For example:
If 100% of pay bill is in England – 100% of levy payment in account
If 80% of pay bill is in England – 80% of levy payment in account.
For levy information outside of England, contact:
Scotland – www.apprenticeships.scot
Wales – businesswales.gov.wales/skillsgateway/skills-and-training-programmes/apprenticeships
Northern Ireland – www.nidirect.gov.uk/campaigns/apprenticeships
Expiry of levy funds
Levy funds expire 24 months after they enter your account unless you spend them on apprenticeship training.
Levy spend is applied on a first in, first out basis (the government call this ‘sunsetting’). This also applies to any top-ups in your account.