PAYE56101 - Employer returns: apprenticeship levy: introduction

The Apprenticeship Levy (AL) from 6 April 2017 where it applies requires employers with a pay bill over £3 million each year, to fund apprenticeships.

For further information on the Apprenticeship Levy, see the Apprenticeship Levy Manual.

For further information on Apprenticeship funding, see Gov.uk Apprenticeship funding: how it will work and Pay Apprenticeship Levy.

HMRC collects Apprenticeship Levy on behalf of the Skills Funding Agency (SFA). HMRC notifies the SFA of the amount of levy reported and paid. HMRC will share with the SFA the amount of Levy reported as due by the employer in their EPS. That amount is credited to the employer’s Apprenticeship Service account. Once they register for their account, the employer can then draw down those funds to help them support Apprenticeship training.

The Apprenticeship Levy is charged at a rate of 0.5% of an employer’s annual pay bill.

Pay bill

Pay bill is defined as all those earnings which are liable to pay Class 1 secondary NICs, and this includes:

  • any remuneration or profit coming from employment such as wages, bonuses and commission; payments from a registered pension scheme are not considered earnings for NICs purposes - a limited group of pension payments may be subject to class 1 NICs, if paid out of an employer-financed retirement benefits scheme
  • earnings below the Lower Earnings Limit (LEL) and the Secondary Threshold (ST)
  • earnings of employees under the age of 21 and apprentices under the age of 25. 

An annual Apprenticeship Levy allowance of £15,000 means that only those employers with an annual pay bill of over £3 million will have to pay and report the levy. This is because 0.5% of an employer’s £3 million pay bill is £15,000, which is fully removed by the £15,000 Apprenticeship Levy allowance.

However, where the connection rules apply, a pay bill less than £3 million may attract a levy liability, depending on how the allowance is shared. This is because where an employer is connected to other employers by virtue of the connected companies or the connected charities rules, they can only have one annual allowance of £15,000 for all the connected companies or charities within their group.

The £15,000 Apprenticeship Levy allowance cannot be used to pay for apprenticeship training.

The Apprenticeship Levy is an annual charge, but employers report and pay it each tax month, as they do other PAYE liabilities. The monthly calculation of levy liability is based on the employer’s total pay bill for the tax month, which may include weekly as well as monthly pay runs.

Employers must report their levy liability to HMRC if:

  • their pay bill in the preceding tax year was over £3 million
  • they consider they will have a levy liability during the current tax year i.e. they believe their annual pay bill will be over £3 million in the tax year
  • the levy allowance has been shared across a group of companies or charities and the share of their allowance is such that they know they will have a liability to pay the levy.

When an employer starts to submit levy submissions, they need to continue reporting it until the end of the tax year even if the annual pay bill turns out to be less than £3 million.