The launch of the Apprenticeship Levy is just around the corner, but from our interactions with employers, it’s clear that many questions still persist in terms of what’s used to calculate Levy contributions.
In this guide, we’ll take a look at what makes up your Levy and highlight some of the factors that might make an influence to the amount you have to pay.
What makes up your Levy?
Any organisations classed as an ‘employer’ with a payroll that exceeds more than £3 million each year will need to pay into the Levy. In terms of the Levy, employers are counted as those who are secondary contributors and liable to pay Class 1 secondary National Insurance Contributions (NICs) for those they employ.
Your pay bill is calculated using your organisation’s total amount of earnings that are subject to Class 1 secondary NICs. However, even in cases where earnings fall below the threshold for NICs, they’ll still be counted when calculating how much Levy you’ll have to pay.
Earnings are counted as any type of profit or other remuneration that results from employment, including:
- Pension contributions (which NICs are paid on).
However, it doesn’t come into effect on other payments that are liable for Class 1A NICs, like benefits in kind.
The Levy is charged at the rate of 0.5 per cent of your overall pay bill for the year, however, all employers will get £15,000 to offset against their contributions each year. Technically speaking, all employers will fall within the scope of the Levy, but in reality, only those with a pay bill exceeding £3 million will have to pay anything (due to the fact that 0.5 per cent of £3 million is equal to the £15,000 allowance).
How and when you’ll need to pay the Levy
While charged on your overall pay bill for the year, your Levy contributions (and corresponding allowance) operate cumulatively on a month-by-month basis. Your allowance is therefore broken down to £1,250 per month, with any you don’t use getting carried over to the following month.
In cases where you have unused allowance in a given month, but have previously paid the Levy in that tax year, you’ll get a credit back from HMRC, which you’ll be able to use against other PAYE liabilities.
Organisations with more than one PAYE scheme who don’t make full use of their allowance will be able to offset the unused sum against another scheme after the tax year comes to an end.
Connected companies and group organisations
For the purposes of the Levy, connected companies and group organisations are considered to be a single entity. As set out in our stand-alone guide on the issue, this status has a range of implications, including a limit to a single £15,000 allowance per group and the pay for the entire group’s staff contributing towards their Levy eligibility.
However, groups can opt to pool their funds by registering multiple PAYE schemes with a single digital account via HMRC.
Paying the Apprenticeship Levy
The onus is on employers to calculate, report and pay their Levy contributions to HMRC via PAYE. If, after assessing your pay bill, you calculate that you’ll need to pay the Levy - you’ll need to declare this to HMRC and make sure to include it in your following monthly PAYE payment.
If you fail to make the necessary payments, HMRC has the power to investigate organisations it expects of noncompliance and if required, implement penalties.
Accessing your Apprenticeship Levy funding
Once you’ve paid your Levy contributions, you’ll be able to access funding for Apprenticeship training through the government’s online Apprenticeship Service. A 10% top-up will also be applied to these funds once they enter your organisation’s account.
However, you’ve only got 24 months to use these funds, after which they will ‘expire’. Funds are classed as ‘spent’ once they’ve been directed to a training provider and leave your account.
Apprenticeship Levy funding for employees based outside of England
As covered in our guide on the issue, while you’ll need to pay the Levy on your entire workforce throughout the UK, policies governing Apprenticeships are part of the devolved portfolio of powers given to the administrations of the country’s constituent nations.
While Scotland, Wales and Northern Ireland will get a share of the Levy (as determined by the Barnett formula), they’ve yet to decide on how they’ll be using it - although consultations on the matter are at various stages within each country.
Hopefully, we’ve managed to shed some light on how the Levy’s calculated and some of the main issues that can influence what your organisation will pay, but if you’ve got any questions about the topics above (or anything Levy-related) - don’t hesitate to get in touch via Twitter or LinkedIn.
And if you’re looking for bespoke advice on support on managing your Levy contributions or apprenticeship training - be sure to get in touch with our Levy team today: