As the new tax year approaches, it’s important for businesses to ensure they are fully compliant with HMRC regulations, including the Apprenticeship Levy. If your organisation is required to pay the levy, understanding how it is calculated and allocated across multiple entities will help you manage payroll effectively and make the most of the available allowance.
What is the Apprenticeship Levy?
The Apprenticeship Levy is a government initiative designed to fund apprenticeship programs and encourage workforce development. It applies to all employers across the UK and is used to create opportunities for training and skill development.
Who needs to pay the Apprenticeship Levy?
Employers are liable to pay the Apprenticeship Levy if they have an annual pay bill exceeding £3 million, or they are connected to any companies or charities for Employment Allowance purposes that have a combined annual pay bill of more than £3 million.
How is the Apprenticeship Levy calculated?
The levy is calculated based on your total annual pay bill, which includes all earnings subject to Class 1 National Insurance Contributions (NICs). This means salaries, bonuses, commissions, and other taxable earnings contribute to the calculation.
For example, if your organisation has a total annual pay bill of £4 million:
- Levy due: 0.5% of £4,000,000 = £20,000
- Deducting the £15,000 allowance: £20,000 - £15,000 = £5,000 payable
Allocating the Levy Allowance across multiple entities
If your business operates under multiple entities, you can split the £15,000 allowance across them. The allowance division must be decided at the beginning of the tax year and reported to HMRC accordingly.
For instance:
- Company A allocates £7,000
- Company B allocates £5,000
- Company C allocates £3,000
Once allocated, each entity calculates its levy liability individually based on its own pay bill.
Reporting and paying the Levy
UK Payroll reports your Apprenticeship Levy liability to HMRC automatically every month on the EPS (Employer Payment Summary). The EPS is submitted on 14th of the following month, where there are relevant items to report, such as statutory payments, Apprenticeship Levy or Employment Allowance.
How to set up the Apprenticeship Levy in UK Payroll
For a full guide on how to set up the Apprenticeship Levy in UK Payroll, see our Help Centre article linked below.
For more guidance, visit HMRC’s Apprenticeship Levy Guidance