FAQs for Apprenticeship Levy payers
In this article we answer your questions about paying the apprenticeship levy and what this means for your organisation.
As an employer, you’ll have to pay the Apprenticeship Levy each month if you:
- Have an annual pay bill of more than £3 million.
- Are connected to other companies or charities for
- Employment Allowance which in total have an annual pay bill of more than £3 million.
Should I pay the Apprenticeship Levy?
As an employer you fall into one of two groups: levy payers and non-levy payers. If you’re an employer with a pay bill over £3 million each year, you must pay the Apprenticeship Levy, employers with a pay bill of less than £3 million a year will not need to pay the levy.
Levy payers
As an employer, you’ll have to pay Apprenticeship Levy each month if you have an annual pay bill of more than £3 million - Apprenticeship Levy is charged at 0.5% of your annual pay bill.
You’ll receive funds to spend on training and assessing your apprentices. The government will add 10%.
Non-levy payers
You pay 5% towards the cost of training and assessing your apprentice. You need to: agree a payment schedule with the training organisation and pay them directly for the training. The government will pay the rest (95%) up to the funding band maximum. They’ll pay it directly to the training organisation. You could be eligible for extra funding depending on both your and your apprentice’s circumstances.
I am a Levy payer what does this mean for my organisation
Your annual pay bill is all payments to employees that are subject to employer Class 1 secondary National Insurance contributions such as wages, bonuses and commissions. You must include payments to:
- All employees earning below the Lower Earnings Limit and the Secondary Threshold.
- Employees under the age of 21.
- Apprentices under the age of 25.
Your pay bill does not include earnings:
- Of employees under the age of 16.
- Of employees who are not subject to UK National Insurance contributions legislation.
- On which Class 1A National Insurance contributions are payable, such as benefits in kind.
Employers who are not connected to another company or charity will have an Apprenticeship Levy allowance of £15,000 each year.
The allowance reduces the amount of Apprenticeship Levy you have to pay by £15,000 across the year. This means that only employers with an annual pay bill of more than £3 million will pay the levy.
You cannot carry over any unused allowance into the next tax year.
Connected companies or charities will only have one £15,000 allowance to share between them.
If you start or stop being an employer part way through the tax year you can use your full annual Apprenticeship Levy allowance against the amount of the levy that you owe.
- Of employees who are not subject to UK National Insurance contributions legislation.
- On which Class 1A National Insurance contributions are payable, such as benefits in kind.
Your Apprenticeship Levy allowance of £15,000 can be allocated between:
- All your PAYE schemes.
- Your connected companies or charities.
You can decide how to split the allowance between your PAYE schemes or with your connected companies or charities. You’ll need to report how you’ve allocated your allowance the first time you have to pay Apprenticeship Levy. You cannot change your share of the allowance during the tax year.
You must continue to apply the levy allowance that was allocated at the beginning of the tax year if, part way through the year:
- you become a connected employer (such as by merging with or acquiring another company)
- the structure of your group of connected companies or connected charities changes (such as by demerging with another company)
You can decide how you allocate your levy allowance across your connected companies or charities at the start of the next tax year.
Where the allowance has been allocated across connected companies or charities you cannot change the allocation of the allowance at the end of the tax year.
If you are an employer with multiple PAYE schemes and you do not use your full Apprenticeship Levy allowance during the year, you can change the allocation at the end of the tax year, to offset any unused allowance against another of your schemes.
Public bodies each get a full Apprenticeship Levy allowance as they are not considered to be connected companies.
NHS trusts and other health service bodies (such as Scottish Health Boards, Welsh Local Health Boards and Health and Social Care Trusts in Northern Ireland) are considered to be companies and therefore have to follow the connected companies rules.
Public bodies which are charities must follow the rules for connected charities.
Apprenticeship Levy is charged at 0.5% of your annual pay bill.
You can use HMRC’s Basic PAYE Tools to help you work out how much you need to pay.
For the first month of the tax year:
- Divide your Apprenticeship Levy allowance by 12.
- Subtract this figure from 0.5% of your monthly pay bill.
For each of the following months:
- Calculate your total pay bill for the year to date.
- Add up your monthly levy allowances for the year to date.
- Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date.
- Subtract the amount of the levy you’ve paid in the year to date.
If you start paying the levy part way through the tax year, you’ll need to calculate how much of your annual allowance has been accumulated in the current year. Divide your full annual allowance by 12 and multiply by the number of months since the start of the tax year. This figure is your allowance for the first month you report the levy.
Any unused allowance can be carried forward into the next month within the same tax year.
You’ll still need to pay Apprenticeship Levy even if you already contribute to an industry-wide training levy arrangement, for example the Construction Industry Training Board Levy.
From 6 April 2017, you’ll need to tell HMRC how much Apprenticeship Levy you owe each month:
- From the start of the tax year if:
- Your annual pay bill (including any connected companies or charities) in the previous tax year was more than £3 million.
- You think your annual pay bill (including any connected companies or charities) for the tax year will be more than £3 million.
- If your annual pay bill (including any connected companies or charities) unexpectedly increases to more than £3 million – start reporting when this happens
If you’ve started paying Apprenticeship Levy, you’ll need to continue reporting it until the end of the tax year even if your annual pay bill turns out to be less than £3 million.
Connected companies or charities will each need to tell HMRC how much Apprenticeship Levy they owe.
Report your Apprenticeship Levy each month using your employer payment summary (EPS) and include the amount of the:
- Annual Apprenticeship Levy allowance you’ve allocated to that PAYE scheme.
- Apprenticeship Levy you owe to date in the current tax year.
You do not need to report Apprenticeship Levy on your EPS if you have not had to pay it in the current tax year.
You must keep records of any information you have used to calculate your levy payment for at least 3 years after the tax year which they relate to.
You must keep records of any information you have used to calculate your levy payment for at least 3 years after the tax year which they relate to.
If you run a modified PAYE scheme you’ll need to account for National Insurance contributions as usual. Use a best estimate of all earnings that are subject to Class 1 secondary National Insurance contributions to check if you need to pay the Apprenticeship Levy. You’ll need to submit an EPS each month using these estimated figures.
At the end of the tax year, you’ll also need to:
- Check your estimated pay bill against the actual figures for the tax year.
- Submit an additional EPS to correct any difference and pay any Apprenticeship Levy owed.
You’ll need to pay the Apprenticeship Levy each month in the same way you pay Income Tax or National Insurance contributions.
If you’ve overpaid Apprenticeship Levy during the year, you’ll receive a refund as a PAYE credit.
Apprenticeship Levy payments are a deductible expense for Corporation Tax.
When the levy applies in specific sectors
Franchises with an annual pay bill of over £3 million (including any connected companies or charities) will have to pay the levy. You’ll have an annual allowance of £15,000 for all of the franchises under your control. You can choose to share the allowance across the franchises you control or across your PAYE schemes.
Payments from a public sector employer to a personal service company, a partnership or other individual which are subject to off-payroll working reforms must be included in the public sector employers pay bill. This is because the public sector employer will be liable to pay the Class 1 National Insurance contributions for workers engaged through such intermediaries from April 2017.
These changes do not apply for services provided through intermediaries such as a personal service company to clients in the private sector.
Short lived companies such as special purpose vehicles will have to pay the levy if they’re liable for Class 1 secondary National Insurance contributions. You’ll have a full £15,000 allowance if the special purpose vehicle has been set up part way through the tax year. You’ll have to check whether you’re connected to another company or charity at the start of the following tax year.
If you’re a managed service company you’ll have to pay the levy if you have an annual pay bill of over £3 million. If you’re connected to another employer, you may have to pay the levy if your pay bill is less than £3 million.
You’ll need to pay the levy if all the following apply:
- You supply labour (including subcontractors) to a client.
- You pay Class 1 secondary National Insurance contributions on the earnings of those workers.
- Your pay bill exceeds £3 million (including any connected companies or charities).
If you’re in a joint venture partnership where 2 companies each have a 50% share in a further company, neither company will have overall control. As a result, the joint venture would not be connected to any other companies. The 2 companies and the joint venture would therefore each be entitled to their own levy allowance of £15,000.
Other types of joint ventures will get a full £15,000 allowance if they’ve been set up part way through the tax year. They’ll need to check if they’re connected to another employer at the start of the next tax year to work out their allowance for the following year.
If you’re in a joint venture partnership where 2 companies each have a 50% share in a further company, neither company will have overall control. As a result, the joint venture would not be connected to any other companies. The 2 companies and the joint venture would therefore each be entitled to their own levy allowance of £15,000.
Other types of joint ventures will get a full £15,000 allowance if they’ve been set up part way through the tax year. They’ll need to check if they’re connected to another employer at the start of the next tax year to work out their allowance for the following year.
Transferring unused apprentice funds to other employers
Employers who pay the Apprenticeship Levy and have unused apprenticeship funds can find employers who want to receive a transfer in a number of ways. For example, you could:
- Work with employers you currently work with.
- Get in touch with other employers in your industry.
- Get in touch with an Apprenticeship Training Agency (ATA).
- Work with regional partners.
From April 2019, levy-paying employers can transfer a maximum amount of 25% of their annual funds. They can make transfers from their apprenticeship account to as many employers as they choose.
The apprenticeship service calculates this amount by:
- the total amount of levy declared in the previous tax year
- with the English percentage applied
- plus the payment of 10% from the government
Transferred funds will be used to pay for the training and assessment cost of the apprenticeships agreed with the receiving employer.
Sending and receiving employers need to know that:
- Funds are paid monthly for the duration of the apprenticeship.
- Only levy-paying employers can make a transfer.
- Any employer can receive and use transferred funds.
- Sending and receiving employers have to be registered on the apprenticeship service.
- A transfer can only be used to pay for training and assessment for apprenticeship standards.
- Transfers can only be used for new starts, except where the apprentice is changing employer and an agreement to continue their apprenticeship with their new employer is through a transfer of levy funds.
The sending employer and the receiving employer need to first agree the details of the transfer of funds; for example, which apprenticeship standard, how many apprentices, the cost.
Once both employers are registered on the apprenticeship service the following must be done in their accounts to complete a transfer:
- Connect with each other.
- Receiving employer to add the apprentice details.
- Confirm the transfer.
Before you make a transfer from your apprenticeship account, make sure that you:
- Have enough funds to transfer to another employer.
- Have a clear understanding of the forecasted cost to you, which will cover the duration of the apprenticeship you’ve agreed to fund through a transfer.
- Understand you will be funding the total cost of their apprenticeship and not just the co-investment.
- Agree with the employer who is receiving the transfer, details of the apprenticeships you’re funding.
- Are aware of the funding rules around transferring apprenticeship funds.
You should also know:
- You can’t transfer funds to another employer if you currently receive a transfer.
- If you’re currently transferring funds to another employer, you can’t receive transferred funds to pay for your apprenticeships.
- Transfer payments will leave your apprenticeship service account first, each month.
- If the apprenticeship stops, your transferred payments will stop as well.
If you want to receive a transfer from another employer you must be aware of the following:
- You can only use the transferred funds for apprenticeship training and assessment.
- Transferred funds can only be used for apprenticeship standards.
- You’ll need to create an account on the apprenticeship service to receive the transfer and pay for apprenticeship training.
- You’ll need to sign an agreement with the Education and Skills Funding Agency (ESFA).
- Transfer payments will be made monthly from the sending employer to your apprenticeship account.
- If the apprenticeship stops then the funding will stop too.
- You won’t have to pay any funds back to the sending employer.
- If the employer sending you funds runs out of money, you must make the relevant employer co-investment contribution. Refer to the ‘Paying for an apprenticeship’ section of the funding rules for information on the rate that needs to be paid.
- A transfer can fund up to the funding band maximum of a standard, if the cost of training is more, you’ll have to pay the difference to the training provider.
- If a training provider transfers funds to you, they cannot deliver the training for that funded apprenticeship.
- Funding rules around transferring apprenticeship funds.
Employers need to take account of state aid rules when receiving funds from other organisations.
A percentage of all the funds you receive as a transfer may be considered as state aid. This represents the amount of co-investment you would otherwise have had to contribute towards the apprenticeship, if funds had not been transferred.
For all starts funded through a transfer before 1 April 2019, 10% of all the funds you receive may be considered as state aid. For starts funded through a transfer on or after 1 April 2019, only 5% may count. This is because the co-investment rate is reducing from 10% to 5% for all new starts from 1 April 2019.
Before accepting a transfer, employers should check how much state aid they’ve already received in any 3 year period, so they don’t go over the limit they’re allowed under ‘de minimis’ funding rules – see guidance on ‘de minimis’ support. The limit an organisation is allowed to receive as state aid is €200,000 in any rolling 3-year period.
What is state aid?
State aid is any advantage granted by public authorities, through state resources on a selective basis, to any organisations that could potentially distort competition and trade in the European Union (EU).
So that you do not go over the allowed limit of €200,000 for state aid in any 3 year period, you should check:
- How much state aid you’ve already received.
- If you’re part of a connected organisation, how much combined total state aid you have received.
FAQs about the Apprenticeship Levy
The levy is paid by large employers with a pay bill of over £3 million (they pay 0.5% of their total annual pay bill). Currently, only 2% of employers pay the apprenticeship levy, but this funding has helped directly support almost 50% of all apprenticeships in 2017/18.
Levy paying employers access their funds through the online apprenticeship service. The funds in their accounts are available to spend on apprenticeship training in England. For more advice and information visit the GOV.UK website.
The levy is there to fund apprenticeship training for all employers. Any unspent levy funds are used to support existing apprentices to complete their training and to pay for apprenticeship training for smaller employers.
No, not at all. The levy is there to fund apprenticeship training for all employers. Smaller employers – those with a total annual pay bill of less than £3million – pay just 5% of the cost of their apprenticeship training and the Government pays the rest.
- The National Apprenticeship Service provides face to face and telephone support to levy paying employers to help them invest their levy funds and use apprenticeships to support their businesses.
- Levy paying employers can now also transfer up to 25% of their levy funds to other employers. This will help to make sure the system is flexible, meets the needs of employers and will also help smaller businesses to invest in more training opportunities.
We understand that employers want and need flexibility. To support this the Government extended the amount of time employers have to spend their levy funds from 18 to 24 months. Levy paying employers can now also transfer up to 25% of their Levy funds to other employers.
Yes. The latest figures show that since the levy was introduced on 6 April 2017 it has directly supported 312,900 people to start their apprenticeship journey.
Employers have 24 months to use their funds once they enter their apprenticeship service account, after this point, their funds will expire. The funds expire to encourage levy paying employers to invest in high-quality training and assessment and to prevent levy payers from accruing very large balances. However, any unspent levy funds within each financial year are then used to support existing apprentices to complete their training, pay for apprenticeship training for smaller employers and additional payments to support apprentices.
- Employers can only spend their levy funds on apprenticeship training in England.
- However, it is important to note that there is a difference between employers’ levy funds and the department’s ring-fenced apprenticeship budget. The departments’ budget funds all apprentices currently in training – those already in an apprenticeship and those just starting, those working for employers who pay the apprenticeship levy, and those working for employers who do not.
- As businesses of all sizes recruit and train more apprentices, we expect there will be very little (if any) year on year underspends of the apprenticeships budget. We also expect to see levy payers spending an increasing proportion of their funds too.
- The fact that an employer’s funds expire after 24 months in their apprenticeship service account doesn’t stop employers meeting the full costs of an apprenticeship that lasts longer than 24 months. New funds enter an employer’s account every month for as long as they pay the levy.
- The costs of an apprenticeship are spread over the full length of the apprenticeship and are met in monthly instalments. The Government always uses the oldest funds in an account first to minimise the potential for funds to expire.
- Only funds that are not spent will expire 24 months after they enter an employer’s account. If an employer does not have sufficient funds in their account to cover the monthly cost, the Government will pay 90% of the balance due.
- Employers can use the National Apprenticeship Service’s ‘Estimate my apprenticeship funding’ tool to estimate how much your organisation will have available to spend on apprenticeships.
- Thousands of employers including top firms like Channel 4, Royal Mail and Lloyds Banking Group as well as public sector organisation like the NHS and the British Armed Forces are using their levy funds effectively to set up a range of high-quality apprenticeship programmes.
- If businesses need help or advice, they can always speak to the National Apprenticeship Service who provides face to face and telephone support to levy paying employers.
Source: Department of Education, April 2019