What is the Apprenticeship Levy and why does it appear in my pay calculation?

(2 minutes to read)

The Apprenticeship Levy was introduced by the government in April 2017 and is designed to fund apprenticeship schemes – which allow employers to recoup some costs of providing training to apprentices – across the UK.

The Levy is a small tax charge, payable by all companies with an annual wage bill in excess of £3m. Specifically, the tax is 0.5% of the company’s gross payroll. It’s paid to HMRC alongside income tax and National Insurance. If separate companies form a group, their total payroll is used for the calculation – this prevents companies splitting into multiple smaller companies, with wage bills below the £3m threshold, in order to avoid the charge.

If you’ve read our article on how an umbrella company employee’s pay is calculated, you’ll know that the umbrella company pays the statutory costs of employment – such as Employer’s National Insurance and pension – from the funds received from your agency or end client. The Apprenticeship Levy is another one of these statutory costs, and so will appear on your pay calculation alongside these other statutory costs.

Before the Levy was introduced, and for a period following its implementation, there was an extended dialogue between recruiters, umbrella companies and HMRC regarding an exemption to the Levy for these parties who engage contractors under an overarching contract of employment. However, this dialogue was unproductive – so the Apprenticeship Levy remains a component of the statutory costs of employment on your pay calculation and is paid directly to HMRC.

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