What is the apprenticeship levy and how is it calculated?

Apprentice sat in front of a computer.

If you’re wanting to upskill your staff through apprenticeships or take on a new member of the team, the apprenticeship levy is a great way to used dedicated funds to boost your business.

What is the apprenticeship levy?

The apprenticeship levy is a tax on UK employers with an annual wage bill over £3 million or more each year.

It was introduced in April 2017 as part of the Government’s apprenticeship reforms, and is used to fund apprenticeships, support business productivity and grow quality vocational training and employment.   

If you’re a large business with an annual wage bill of £3million or more, you’ll already be contributing 0.5% of that wage bill towards apprenticeship training costs. This is known as the apprenticeship levy and you have 24 months to use it before it automatically goes back to the Government.  

If you’re a business with fewer than 50 employees, you could get 100 per cent of the cost of training paid for by the Government. Small and Medium Enterprises (SMEs) can also access levy gifted funds to pay for apprenticeship training. 

How is the levy calculated?

The 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:

1.    Divide your apprenticeship levy allowance by 12.
2.    Subtract this figure from 0.5% of your monthly pay bill.

For each of the following months:

1.    Work out your total pay bill for the year to date.
2.    Add up your monthly levy allowances for the year to date.
3.    Subtract your levy allowance for the year to date from 0.5% of your total pay bill for the year to date.
4.    Subtract the amount of the levy you’ve paid in the year to date.

Find out more here: Pay Apprenticeship Levy

How can I spend my apprenticeship levy?

You can use these funds to upskill your team members through apprenticeships and training, recruit brand new apprentices, and use the funding to pay for End Point Assessments, the final stage that are conducted by independent organisations. 

The levy can be spent on a number of elements related to apprenticeships excluding travel costs, management costs, required licenses, wages or the cost of setting up the apprenticeship. 

Read our full guide – How to Spend your Apprenticeship Levy.

Remember, if you’re a large organisation that hasn’t been able to use all your funds, you can gift up to 25% for smaller business to access for training and apprenticeships. 

Levy gifting can help you form relationships with other organisations, build your reputation as a caring brand and support your CSR agenda. You can contact our knowledgeable team on 03333 222 666 to find out the best solution for you and your business.

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