While every attempt will be made to ensure that information provided is accurate at the time of publication, it should be treated as guidance only and does not constitute legal or professional advice. Tax law and guidance changes frequently and readers are advised to consult the current relevant product for the most up-to-date information on this topic.


The apprenticeship levy was introduced in Finance Act 2016 and applies as from 6 April 2017. The rate of levy is 0.5 % of paybill, offset by a £15,000 'levy allowance'. This means that, in effect, it applies only to employers who have an annual paybill of £3 million or more a year.
FA 2016, s 99

The apprenticeship levy payment regime is administered by HMRC as part of the RTI system, alongside PAYE tax and NIC.

The money raised by the apprenticeships levy goes into a special training fund which is topped up by government with the aim that it can be accessed by all employers to help meet the training and assessment costs of apprenticeships.

Payments of the apprenticeship levy are deductible in computing the employer's profits for tax purposes.

Who has to pay the levy?

The apprenticeship levy is payable by employers, in this content this means anyone who is a secondary contributor in respect of employed earner(s) for Class 1 NIC purposes.
FA 2016, s 100(1)

Potentially all employers have to pay the levy, but the levy is offset by a levy allowance of £15,000. As the levy is 0.5% of the employer's paybill, only employers whose annual paybill is £3 million or more will actually have any liability to pay the levy.

An employer's paybill means the total amount of employees' earnings that are subject to Class 1 NIC (including any earnings below the secondary threshold). This means that non-cash benefits which are subject to Class 1A NIC and anything subject to Class 1B NIC are ignored. See Example 1.

There are special rules applying to groups of companies. Only one levy allowance is available to any 'company unit' of made up connected companies who are employers. Two companies are connected if they are both under common control or if one has control over the other, with the usual definition of control (in Part 10 of CTA 2010) applying. It is up to the individual companies in the 'company unit' to decide how the levy allowance should be shared between them (some members may have a nil share, but a negative share is not allowed). The members of the unit should make that decision and notify HMRC by means of an election at the start of the tax year and it is fixed for the whole of that tax year. If the members of the unit do not make such a decision HMRC will assume that each of them is entitled to an equal share of the levy allowance. The overall effect is that if the combined paybill of all members of the 'company unit' is more than £3 million, one or more companies in the unit will have a liability to pay the apprenticeships levy.
FA 2016, s 101

Normally, for tax purposes, companies can be treated as being connected just because the persons who control them are associated with one another. For the purposes of the apprenticeships levy, such companies are not treated as being connected with one another unless they are commercially interdependent.
NICA 2014, Sch 1, para 3

The definitions for commercial interdependence are the same as for the NIC employment allowance ― companies can be interdependent if there are any of the following three elements present:

  • financial interdependence: where one company supports the other financially, or each has a financial interest in the other's activities
  • economic interdependence: where both companies have the same economic objective, the activities of one benefit the other, or they both have the same customers
  • organisational interdependence: where the two companies have common management, employees, premises or equipment

Where there is no commercial interdependence, companies each owned by different associated persons may each qualify for the full levy allowance.

See Example 2.

If the employer is a charity and is connected with one or more other charities, similar rules apply as in the case of connected companies, and only one levy allowance is available to each 'charities unit'.
FA 2016, s 102

There are anti-avoidance rules to guard against employers making arrangements to get more levy allowance than they are entitled to or otherwise to get an advantage in relation to the apprenticeship levy, such as a lower or later payment than would otherwise have been the case.
FA 2016, s 103


The apprenticeship levy is collected through the RTI system and follows the same payment schedule (payments for each tax month have to be made to HMRC by the 22nd of the following month (or 19th if payment is not by electronic transfer). It is calculated on a monthly basis on the basis of the cumulative paybill to date and offset by the appropriate proportion of the levy allowance for the year to date. The levy allowance cannot produce a negative amount of apprenticeship levy. If any calculation made during the tax year shows that, on a cumulative basis, too much levy has been paid, that overpayment is effectively treated as a credit which is carried forward to the next calculation. There will also be an opportunity to reconcile the whole year's levy payments against the annual levy allowance at the end of the tax year. If there is an overpayment at the end of the tax year, it is set against PAYE liabilities with any amount after that set-off being repayable.

The amount to be paid over each month will be:

Total of employees' Class 1 earnings to date = X
X x 0.5% = Y
Less 1/12 of levy allowance for each tax month to date* (A)
Amount of levy due to date L
Less levy paid in previous months (P)
Levy due for current month D

* The levy allowance is £15,000 or if the employee is in a 'company unit' or 'charities' unit, whatever proportion of £15,000 is agreed by the members of the group as being appropriate to that employer.

If an employer has more than one PAYE scheme, they can choose how to apportion their levy allowance between those PAYE schemes. They must notify HMRC of that choice by means of an election made with their first RTI return to include apprenticeship levy.

If D is a negative figure the levy payable is nil. A negative figure does not result in a repayment.

See Example 3.

Reporting and compliance issues

Employers whose total annual paybill is under £3 million in the previous tax year do not have any reporting requirements in respect of the apprenticeship levy. Where the employer is in a group of companies, that limit applies across the group. This limit was increased from a previously proposed level of £2.8 million following consultation on legislation.

HMRC's normal powers to require information or to carry out inspections also extend to the apprenticeship levy.
FA 2008, Sch 36, para 63

Any failure to make or inaccuracies in apprenticeship levy returns or payments of the levy is subject to the same penalty regime as PAYE returns and payments.
FA 2016, s 113

Accessing the apprenticeships fund

From May 2017, employers who make apprenticeship levy payments will be able to access funding for apprenticeship training by creating an account under a new digital apprenticeship service on the government website. The account will show the amount of levy paid by the employer plus the 10% government top-up. That service will also enable employers to find training providers.

Funds held in the digital apprenticeships account will only be available for the levy-payer's use for 18 months. After that they will go into a central fund. Each separate levy payment (plus the associated 10% government top-up) will have its own 18-month lifespan. Funds used to provide training will be taken from the account on a first-in-first-out basis.

Employers who are in a 'companies unit' or a 'charities unit' for the purposes of the levy allowance will have access to a single digital account for use by all members of the same unit.

Employers who do not have a large enough paybill to make any levy payment will be able to use the digital apprenticeships service to identify the training needed for their apprentices, suitable providers and apply for help with the cost from the government.

As the digital service becomes established, it will include more functionality, so that by 2020 it will allow all employers to:

  • select an apprenticeship framework or standard
  • choose appropriate training provider(s)
  • choose an assessment organisation
  • pay for the apprenticeship training and assessment
  • advertise apprenticeship vacancies

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