Calculating the Apprenticeship Levy

The Apprenticeship Levy can seem complicated, but when you break it down into steps calculating how much you have to pay into the Levy, and how many funds you have to spend is simple.

The Apprenticeship Levy is a government scheme made to encourage UK businesses to invest in the next generation of workers by recruiting apprentices. Apprenticeships themselves have undergone significant transformations in the past few months and years. As such, new apprentices must be taught according to the agreed Apprenticeship Standards.

What are Apprenticeship Standards?

Apprenticeship standards have been introduced to standardise the apprenticeship experience as far as possible across learning providers so that apprentices learning on the job can learn the same skills in Manchester as in London, for example. These standards and frameworks have been set by groups of businesses in a particular field that the Government refers to as “trailblazers”. 

These businesses have come together and discussed the common features that they believe should be included in apprenticeships in their subject area and these have then been designed to map out a clearer path of what is expected from apprentices. As part of this, apprentices are required to undergo an individual assessment at the end of their apprenticeship in order to show that they have acquired the skills, knowledge and experience necessary to have successfully completed their apprenticeship.

Plugging the Skills Gap

The changes being implemented are aimed at making apprenticeships more attractive to both young people and businesses in order to begin to plug some of the skills gaps that have appeared in various sectors. The reasons for these skills gaps are many and varied but the main causes seem to be the effects of the exit from the European Union and the Covid pandemic lockdowns. 

A report by the Learning and Work Institute (L&W) in 2019 found that the UK skills shortage will cost the country £120 billion by 2030. The most shocking figure was that there is going to be a shortfall of 2.5 million highly skilled workers and an oversupply of 8.1 million people with traditionally intermediate or low skills who are simply unable to take on those roles.

This is where apprenticeships come into their own and are proving to be very popular, as they provide the opportunity to mould and train people so that they are able to take on the roles for which there are currently skills shortages. The UK Government clearly recognises the value in this approach and is looking at how best to further increase support for apprenticeships.

The government hopes that these changes will see more young people find their first step into employment in a way that also fills your companies’ skill gaps.

Although any company can use Levy funds through a Levy Transfer, only companies with an annual pay bill of over £3 million pay into the Apprenticeship Levy. For more information on who pays, go to our dedicated guide on the Apprenticeship Levy. If you have a pay bill of less than £3 million, you should read our up-to-date guide on funding.

How to Calculate Your Levy

The Levy you have to pay is the equivalent to 0.5% of your pay bill over £3 million. An additional £15,000 is added to your account by the government to be used or transferred to pay for apprenticeship training and assessment. This amount is equivalent to 0.5% of £3 million, making working out how much you have to pay much easier.

For example, if you have a pay bill of £6 million, you can calculate 0.5% of your pay bill (0.005 x £6,000,000 = £30,000) and then subtract the government offset (£30,000 – £15,000 = £15,000). As such, your annual payment will be £15,000 but you will have £30,000 in your account to spend.

All eligible organisations must calculate the Levy owed from the first month of the tax year.

To calculate your first month of Levy, follow these two steps:

 – Calculate your government offset per month (£15,000 / 12 = £1,250)

 – Calculate 0.5% of your pay bill for that month and then subtract the government’s offset. For a monthly pay bill of £800,000 your sum is 0.005 x £800,000 – £1,250, totalling that month’s Levy to pay as £2,750.

The Employment Payment Summary (EPS) requires you to calculate the amount paid so far, each year as part of every subsequent month’s calculations. To do as such, follow these step-by-step instructions:

• Calculate 0.5% of your pay bill to date, from the start of the tax year. For example, for a company on the fourth month of the tax year with a monthly pay bill of £800,000 your total pay bill so far will be £800,000 x 4 = £3,200,000. 0.5% of this is 0.005 x £3,200,000 = £16,000.
• Subtract the government offset since the start of the tax year. Following the previous example, first calculate the amount of government offset (£1,250 x 4 = £5,000) and then subtract that from 0.5% of your total pay bill to date (£16,000 – £5,000 = £11,000). This gives you the total Levy owed so far this year.
• To find out how much you owe for this month’s Levy, subtract your total Levy paid this year from the total Levy owed this year. Finishing the example, up to the previous month the company would have paid £8,250 in Levy. Subtracting this amount from the total owed (£11,000) gives you £2,750, which is your total owed for this month.

Things to Note

• This will have to be calculated and reported to HMRC through the Employer Payment Summary every month
• If your Levy allowance is split over a group of connected companies, each individual organisation within the group will have to calculate and report their own amount of Levy owed.
• You must re-calculate each month’s Levy as your pay bill is likely to fluctuate. Note that your pay bill includes bonuses. Additionally, you have 24 months to spend each month’s Levy, so it is important to keep track how much Levy is input to the fund so it does not expire.