A simple guide to the UK Apprenticeship Levy

Here’s the Apprenticeship Levy, explained – if you’re thinking of taking on an apprentice, find out if your business will need to pay.

The reason the government introduced the Apprenticeship Levy was to fund the promised three million new apprenticeships by 2020, according to a report in the Independent.

The Levy came into effect on 6 April 2017, and the Chancellor provided an update on it in his Spring Statement 2019.

What is the Apprenticeship Levy?

Businesses that employ apprentices in the UK, and have a pay bill of more than £3 million, need to pay the Apprenticeship Levy. According to gov.uk, this means less than two per cent of UK employers need to pay it – but it doesn’t mean you definitely won’t need to pay anything at all towards the cost of the apprenticeship (more details below).

To work out your pay bill, calculate all your payments to employees that are subject to Class 1 secondary National Insurance contributions. This includes wages, bonuses and commission.

How is the Apprenticeship Levy calculated?

So long as your business isn’t connected to another business or charity, you’ll have an Apprenticeship Levy allowance of £15,000 a year (which is equal to 0.5 per cent of your annual pay bill).

If your business is connected to another business or charity, you’ll only get one allowance to share between you.

HMRC has provided guidance for employers on using Basic PAYE Tools (BPT) to help businesses calculate tax obligations like the Apprenticeship Levy.

How do you pay the Apprenticeship Levy?

Just like Income Tax and National Insurance contributions, you pay the Apprenticeship Levy to HMRC through the PAYE system. Any overpayments you make throughout the year will be returned as a PAYE credit.

And if you run a limited company and you pay the Apprenticeship Levy, it counts as a deductible expense.

Gov.uk has set up an online apprenticeship service to help employers manage their apprenticeships and pay the levy amount they owe.

Find out how to register and use the apprenticeship service as an employer on the gov.uk site.

What if my business doesn’t fall into the levy paying category?

If, like most small businesses, your annual pay bill is less than £3 million, you don’t need to pay the Apprenticeship Levy. But you may still need to contribute to the cost of the apprenticeship.

The rules vary depending on whether you have fewer or more than 50 employees – and the person you take on:

I have more than 50 employees

If you have more than 50 employees, you pay 10 per cent of the cost of any apprenticeship your business runs, and the government makes up the other 90 per cent of the cost.

The term used is ‘co-investment’ and the total amount you pay depends on the funding band your apprenticeship falls into.

I have fewer than 50 employees

The government will fund the full cost of any apprenticeship for a business that has less than 50 employees, if the apprentice is:

  • under 18 years old
  • aged 19 to 24 and has additional learning needs
  • aged 19 to 24 and is from a disadvantaged background

If your apprentice is 19 or older and doesn’t fall into one of the categories above, you’ll need to meet 10 per cent of the cost, and the government will pay the rest.

Have you hired an apprentice for your small business? Tell us how it went in the comments below.

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