How the Apprenticeship Levy Calculator Works – A Complete Guide

First of all, the Apprenticeship Levy came into force in April 2017, charging organisations with an annual wage bill of more than £3 Million an additional 0.5%. This amount is kept in a levy fund which can be used only on apprenticeship training of existing and new staff. So now the questions that arise are “How much apprenticeship levy have you got?” and “What can you do with this money?” To know answers to these queries, you need a handy Apprenticeship Levy Calculator.

How to Calculate Apprenticeship Levy Amount

Each UK employer earning more than £3 million per annum will have an annual levy allowance of £15,000. As a result, this counterbalances the levy they must pay. In addition, the apprenticeship levy will be paid monthly to Her Majesty’s Revenue and Customs (HMRC) through Pay-As-You-Earn (PAYE).

The following are two simplistic examples of how the levy calculations will work on a yearly basis. Furthermore, these examples do not highlight that the allowance is to be provided in equal monthly instalments of £1,250 and that the amount is to be paid on a monthly basis.

Example 1: An employer who will be eligible to pay the levy

First of all, an employer with an annual income bill of £6,000,000:

Levy sum will be: £6,000,000 x 0.5% = £30,000

Subtracting allowance of levy: £30,000 – £15,000 = £15,000

As a result, the employer will have to pay £15,000 per annum as an apprenticeship levy.

Example 2: An employer who does not have to pay the Apprenticeship Levy

An employer with an annual income bill of £2,500,000:

Levy sum will be: £2,500,000 x 0.5% = £12,500

subtracting levy allowance: £12,500 – £15,000 = £0 levy payment per annum

Examples of Levy Calculations and Total Bills

The examples given above do not substantiate the impact of major fluctuations in the wage bill occurring throughout the year. Let us consider another scenario where the pay bill sums up to be £3m however, has an occasional peak to it in July and June:

WAGE BILL TAX MONTH
£250k 1
£150k 2
£550k 3
£450k 4
£200k 5
£200k 6-12
£3 million

Furthermore, the calculation of the levy each month would be as shown in the following table:

Tax Month Pay Bill Pay Bill Pay Bill x 0.5% Allowance Levy Paid per month
1 £250k £250k £1250 £1250 £0 £0
2 £150k £400k £2k £2500 £0 £0
3 £550k £950k £4750 £3750 £1k £1k
4 £450k £1,400k £7k £5k £2k £1k
5 £200k £1,600k £8k £6250 £1750 -£250
6 £200k £1,800k £9k £7500 £1500 -£250
7 £200k £2,000k £10k £8750 £1250 -£250
8 £200k £2,200k £11k £10k £1k -£250
9 £200k £2,400k £12k £11,250 £750 -£250
10 £200k £2,600k £13k £12,500 £500 -£250
11 £200k £2,800k £14k £13,750 £250 -£250
12 £200k £300k £15k £15k £0 -£250
Total £0

 

The Apprenticeship Levy Calculator explanation to the above table is as follows:

1st Month:  £250000 x 0.5% = £1,250 levy

Cumulative levy allowance = £1,250, i.e.

Levy payable 1st month is NIL as £1,250 levy is less than the levy allowance

2nd Month:   £400000 (£250000 + £150000) x 0.5% = £2,000

Cumulative levy allowance £2,500

Levy payable to 2nd month is NIL as £2,000 levy is less than the levy allowance (£2,500)

Levy paid in 2nd month = levy payable to 2nd month – levy paid to 1st month = 0 – 0 = 0

3rd Month:  £950000 (£250000 + £150000 + £550000) x 0.5% = £4,750

Cumulative levy allowance £3,750

Levy payable to 3rd month is £4,750 – £3,750 = £1000

Levy paid in 3rd month = levy payable to 3rd month – levy paid to 2nd month = £1000 – 0 = £1000

4th Month:  £1400000 (£250000K + £150000 + £550000 + £450000) x 0.5% = £7,000

Cumulative levy allowance £5,000

Levy payable to 4th month is £7,000 – £5,000 = £2,000

Levy paid in 4th month = levy payable to 4th month – levy paid to 3rd month = £2,000 – £1000 = £1,000

5th Month:  £1600000 (£250000 + £150000 + £550000 + £450000 + £200000) x 0.5% = £8,000

Cumulative levy allowance £6,250

Levy payable to 5th month is £8,000 – £6,250 = £1,750

Levy paid in 5th month = levy payable to 5th month – levy paid to 4th month = 1,750 – 1,000 – 1000 = -£250

As a result, the employer gets a credit of £250 that month. Even more, this may be used to counterbalance other Pay-As-You-Earn liabilities.

6th Month:  £1800000 (£250000 + £150000 + £550000 + £450000 + £200000 + £200000) x 0.5% = £9,000

Cumulative levy allowance £7,500

Levy payable to 6th month is £9,000 – £7,500 = £1,500

Levy paid in 6th month = levy payable to 6th month – levy paid to 5th month less credits paid to month 5

= £1,500 – 1,000 – 1000 – (-£250) = -£250

Conclusion

The calculation continues in the same way for each of the 7th-12th months. Therefore, the firm will get a credit of £250 per month. The wage bill for the above data of an organization does not exceed £3m for the year hence, there is no levy due overall. In contrast, the employer has to pay the levy for 3rd & 4th month and then receive allowances for the extra amount paid in the next months.

This article was originally published on Now Skills website, you can find it and read it here.