How To Calculate Apprenticeship Levy

Calculate your apprenticeship levy contribution and available funding

Comprehensive Guide: How to Calculate Apprenticeship Levy

The Apprenticeship Levy is a UK government initiative designed to fund apprenticeship training. Introduced in April 2017, it requires all employers with an annual pay bill over £3 million to invest in apprenticeship programmes. This guide explains how to calculate your apprenticeship levy, understand your obligations, and maximise the benefits for your business.

What is the Apprenticeship Levy?

The Apprenticeship Levy is a 0.5% tax on an employer’s annual pay bill, payable through PAYE. The funds are collected by HMRC and made available to employers through their digital apprenticeship service account. Employers can use these funds to pay for apprenticeship training and assessment for their staff.

Who Needs to Pay the Apprenticeship Levy?

You must pay the apprenticeship levy if:

• You’re an employer with an annual pay bill of more than £3 million
• You’re connected to other companies or charities for Employment Allowance purposes and have a combined annual pay bill of more than £3 million

How to Calculate Your Apprenticeship Levy

The calculation follows this formula:

1. Calculate 0.5% of your total annual pay bill – This is your total levy amount
2. Subtract your levy allowance of £15,000 – This is the amount you can offset against your levy payment
3. The remaining amount is what you pay – This is your annual levy payment

For example, if your annual pay bill is £5,000,000:

• 0.5% of £5,000,000 = £25,000
• Subtract £15,000 allowance = £10,000 annual levy payment

Understanding the Levy Allowance

All employers receive a £15,000 levy allowance to offset against their levy payment. This means:

• If your total levy calculation is £15,000 or less, you won’t need to pay the levy
• If your total levy calculation exceeds £15,000, you’ll pay the difference
• The allowance operates on a monthly basis (£1,250 per month)

Connected Companies and the Levy

If your company is connected to other companies or charities (for Employment Allowance purposes), you only get one £15,000 allowance to share between you. The government defines connected companies as those where:

• One company has control over another
• Both companies are under the control of the same person or persons

In these cases, you must decide how to divide the £15,000 allowance between the connected companies. You’ll need to tell HMRC how you’ve decided to split the allowance.

How Levy Funds Can Be Used

Funds in your apprenticeship service account can be used to:

• Pay for apprenticeship training and assessment for apprentices that work in England
• Fund apprenticeship training for your existing employees
• Pay for training for new hires who meet the apprenticeship criteria

Funds expire 24 months after they enter your account unless you spend them on apprenticeship training.

Government Top-ups

The government applies a 10% top-up to the funds entering your apprenticeship service account. This means for every £1 that enters your account as a result of the levy, you get £1.10 to spend on apprenticeship training in England.

Apprenticeship Funding Bands

Each apprenticeship standard is assigned to a funding band, which sets the maximum amount of digital funds that can be used towards an individual’s training. There are 30 funding bands, ranging from £1,500 to £27,000.

Funding Band	Maximum Funding	Example Apprenticeships
1-2	£1,500-£2,500	Intermediate apprenticeships in customer service, team leading
3-7	£3,000-£7,000	Advanced apprenticeships in business administration, IT
8-15	£8,000-£15,000	Higher apprenticeships in management, engineering
16-27	£18,000-£27,000	Degree apprenticeships in digital technology, leadership

Non-Levy Paying Employers

If you don’t pay the levy (your pay bill is less than £3 million), you can still access government funding for apprenticeships. You’ll need to:

1. Reserve funds through the apprenticeship service
2. Pay 5% towards the cost of apprenticeship training
3. The government will pay the remaining 95% (up to the funding band maximum)

Transferring Levy Funds

Levy-paying employers can transfer up to 25% of their annual levy funds to other employers. This can be particularly useful for:

• Supporting apprenticeships in your supply chain
• Helping smaller businesses in your sector
• Funding apprenticeships in your local community

Transferred funds can only be used to pay for the training and assessment cost of the apprenticeship, up to the funding band maximum.

Reporting and Paying the Levy

You need to report and pay the apprenticeship levy to HMRC through the PAYE process. The levy is payable alongside your other PAYE liabilities. You must:

1. Calculate your levy each month
2. Include it in your usual PAYE payment to HMRC
3. Report it through the Employment Payment Summary (EPS)

Maximising Your Levy Funds

To get the most from your apprenticeship levy:

• Plan your apprenticeship programme in advance
• Use the 24-month expiry window wisely
• Consider transferring unused funds to other employers
• Explore higher-level apprenticeships that offer better value
• Train existing staff as well as new recruits

Common Mistakes to Avoid

When dealing with the apprenticeship levy, watch out for these common pitfalls:

• Not registering for the apprenticeship service in time
• Failing to use funds before they expire
• Not understanding the difference between the levy and apprenticeship standards
• Assuming the levy can be used for any type of training
• Not considering the 10% government top-up in your calculations

Recent Changes to the Apprenticeship Levy

The apprenticeship levy has undergone several changes since its introduction:

Date	Change	Impact
April 2017	Levy introduced	0.5% levy on pay bills over £3m
April 2019	Transfer allowance increased	From 10% to 25% of annual funds
August 2020	New funding rules	Simplified funding bands introduced
April 2021	Flexi-job apprenticeships	New apprenticeship model for flexible workers

Authoritative Resources

For official information about the apprenticeship levy, consult these authoritative sources:

• GOV.UK: Apprenticeship Levy Guide
• Institute for Apprenticeships & Technical Education
• IFATE: Apprenticeship Standards

Frequently Asked Questions

What counts towards the pay bill?

The pay bill includes all payments to employees that are subject to employer Class 1 secondary NICs, such as:

• Wages
• Bonuses
• Commissions
• Pension contributions (that are subject to NICs)

Can I get my levy money back if I don’t use it?

No, any unused funds expire after 24 months. It’s a “use it or lose it” system designed to encourage employers to invest in apprenticeship training.

What happens if I don’t spend all my levy funds?

Unspent funds expire after 24 months. The government doesn’t refund unused levy payments – they’re used to fund apprenticeship training for non-levy paying employers.

Can I use levy funds to train existing staff?

Yes, you can use levy funds to upskill existing employees through apprenticeship programmes, as long as the training meets the apprenticeship standards.

How often do I need to report and pay the levy?

You report and pay the levy monthly through your PAYE process, alongside your other PAYE liabilities.

Conclusion

The apprenticeship levy represents a significant opportunity for employers to invest in their workforce. By understanding how to calculate your levy payment, maximising your allowance, and strategically using your funds, you can develop a skilled workforce that drives business growth.

Remember that the levy isn’t just a tax – it’s an investment in your company’s future. With proper planning and execution, your apprenticeship programme can become a key component of your talent development strategy.