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Who needs to pay Apprenticeship Levy
As an employer, you have to pay Apprenticeship Levy each month if you:
- Have an annual pay bill of more than £3 million
- Are connected to any companies or charities for Employment Allowance purposes and have a combined annual pay bill of more than £3 million
The rules for connected companies are the same for Apprenticeship Levy and Employment Allowance.
You can see further guidance on HMRC's website
Calculating your Pay bill
Your annual pay bill is all payments to employees that are subject to employer Class 1 secondary National Insurance contributions such as wages, bonuses and commissions.
Your pay bill must include payments to:
- All employees earning below the Lower Earnings Limit and the Secondary Threshold
- Employees under the age of 21
- Apprentices under the age of 25
Your pay bill must not include earnings:
- Of employees under the age of 16
- Of employees who are not subject to UK National Insurance contributions legislation
- On which Class 1A National Insurance contributions are payable, such as benefits in kind
Pento automatically calculates your pay bill each month based on the above legislation. If the Levy exceeds the £15,000 annual allowance, you will see the Levy due on the Payroll Summary each month.
Setting up Apprenticeship Levy in Pento
New tax year
If you anticipate your annual pay bill to be in excess of £3 million, you will need to enable the Apprenticeship Levy allowance in Pento. If you are unsure if your pay bill will exceed £3 million, you should enable the allowance in Pento anyway, this is because Apprenticeship Levy is calculated cumulatively, therefore if your pay bill is below the threshold, no Levy will be calculated.
To enable Apprenticeship Levy, please follow the steps below
- Select Company from the left sidebar
- Select Allowance
- Select Enable to the right of Apprenticeship Levy
- Once you have selected Enable, the following modal will appear
- You will need to toggle on is liable to pay Apprenticeship Levy
- Once you have enabled it, you will see the following modal
- If you share the £15,000 allowance with other entities, you will need to toggle on Shares allowance with other companies/entities
- If you have enabled allowance sharing, the following modal will appear
- You will need to enter the allocated allowance for the company you are processing on Pento
- Select Enable
- You can disable the Apprenticeship Levy at any point by selecting Stop on the Allowance page
Transferring to Pento part way through a tax year
If you have transferred your payroll to Pento part way through a tax year, you will need to enable the Apprenticeship Levy allowance first by following the steps above. As Apprenticeship Levy is a cumulative calculation, you will also need to enter the Year to Date levy values prior to joining Pento to ensure the remaining Levy due calculates correctly
Pay Bill YTD
Under Pay bill YTD you will need to enter your Year to Date Pay bill for the year so far i.e. Please enter the total Pay bill (pay subject to Class 1 Secondary National Insurance) from April to the final month you are processing payroll with your current provider.
If you are unsure of the figures, your current/previous provider should be able to get this for you.
Levy due YTD
Under Levy due YTD, you will need to enter the Year to Date Levy you have paid for the year so far i.e. Please enter the total Levy already paid from April to the final month your are processing payroll with your current provider.
If you are unsure of the figures, you should be able to get this from your P32 report and/or your current/previous provider.
How Apprenticeship Levy is Calculated
Apprenticeship Levy is charged at 0.5% of your annual pay bill less the Apprenticeship Levy Allowance.
Please note – Pento automatically calculates the Levy due for you each month, the following calculations are for your reference only
For the first month of the tax year
- The Apprenticeship Levy allowance is divided by 12.
- This figure is subtracted from 0.5% of your monthly pay bill.
Pay bill = £260,000
Monthly Allowance = £15,000 / 12 = £1,250
Levy = £260,000 x 0.5% = £1,300
Levy Due = £1,300 - £1,250 = £50
For each of the following months
- Works out your total pay bill for the year to date.
- Adds up your monthly levy allowances for the year to date.
- Subtracts your year to date levy allowance from 0.5% of your total bill for the year to date.
- Subtracts the amount of the levy you’ve paid in the year to date.
If you start paying the levy part way through the tax year
- Works out how much of your annual allowance has been accumulated in the current year.
- Divides your full annual allowance by 12.
- Multiplies by the number of months since the start of the tax year.
This figure is your allowance for the first month you report the levy. Any unused allowance can be carried forward into the next month within the same tax year.