The new tax year, starting on 6th April, will see the introduction of the apprenticeship levy, a government measure that comes in two halves. The first half revolves around the word ‘levy’ and involves calculating, paying and reporting a tax based on the amount you pay your employees. The second half concerns the word ‘apprenticeship’ and covers how the money, once paid, can be used to fund apprentices. As I’m in the business of calculating and reporting payroll taxes, I’ll focus on the first half of this measure, concerning the word ‘levy’.
A levy means the imposition of a tax, fee, fine or subscription. The apprenticeship levy is set at half a percent of an employer’s pay bill, less an allowance. For unconnected businesses, the allowance is £15,000.
For example, if the total pay to all your staff is £3.1 million, multiplying that by half a percent (or 0.005) gives you £15,500. Take off the £15,000 allowance and this leaves you a levy of £500 to pay.
An alternative way to think of the levy is that the first 3 million pounds you pay your employees are levy-free and then each pound above that is charged at half a penny.
As you might expect, there are a few complications:
- Connected businesses (and charities) must divide up the allowance between themselves
- The levy is worked out month by month in a way similar to PAYE
- It must be reported to HMRC each month
If your annual pay bill (including connected employers) is consistently below £3 million, you don’t need to work out or report the levy. For a fuller explanation, see the guidance on gov.uk.
The other aspect of the apprenticeship levy (i.e. spending it on apprenticeships) varies between different parts of the UK, as explained here. By encouraging you to hire more apprentices the policy is intended, as the former host of the American series ‘The Apprentice’ might say, to make your business great.
Edit: Thanks to Magda for spotting a grammatical error in the first paragraph, which has now been corrected.