What is the Apprenticeship Levy, and why am I paying it?

One of the most commonly asked questions by contractors and freelancers (particularly if they have never used an umbrella company before) is, “What is the Apprenticeship Levy, and why am I paying it?” Continue reading as we explore the Apprenticeship Levy and why contractors pay it.

What is the Apprenticeship Levy?

The Apprenticeship Levy is a tax employers pay to boost investment in vocational skills and fund new apprenticeships in the UK. UK employers with an annual payroll of more than £3 million must pay a flat rate of 0.5% of their annual wage bill towards the levy.

Why do umbrella companies pay the Apprenticeship Levy?

The annual wage bill is the sum of all payments made to all workers operating via PAYE and subject to Class 1 National Insurance Contributions. As umbrella companies employ and process the payroll for hundreds (sometimes thousands) of contractors, they must pay the Apprenticeship Levy. This is because, despite the umbrella company’s profit levels not always being as high as other companies who pay the Apprenticeship Levy, their wage bill (turnover) tends to be greater than £3 million due to the volume of their payroll.

Why am I paying the Apprenticeship Levy?

The Apprenticeship Levy will never be taken from your gross rate of pay.

The Apprenticeship Levy is an employment cost which is deducted from the assignment rate. The assignment rate is the amount paid to the umbrella company by your agency or end client, which includes an uplift for the employment costs, such as the Apprenticeship Levy and Employers National Insurance, as well as your gross rate of pay. The gross rate of pay is the wages payable to you before tax deductions.

If you’re an umbrella company contractor, the Apprenticeship Levy will be listed on your payslip in the same section as the other employment costs. You must look for the Apprenticeship Levy deduction on an umbrella company calculation and payslip to ensure your provider is compliant and makes the correct tax deductions.

Always use a compliant umbrella company

If you are looking for an umbrella company to manage your payroll, it’s important you only use a compliant provider. Using a tax avoidance scheme could land you in serious trouble with HMRC and result in thousands of pounds in underpaid tax. With over 500 umbrella companies in the UK, how can you distinguish between a compliant umbrella company and a tax avoidance scheme? An excellent way to start your search is to look for the FCSA accreditation or SafeRec certification.

FCSA

The FCSA is the UK’s leading professional body dedicated to ensuring the compliance of the supply chain of temporary workers. To achieve FCSA accreditation, providers must pass strict audits and compliance checks to ensure they uphold the highest ethical standards.

To view Churchill Knight Umbrella’s official FCSA listing, please click here.

SafeRec

Powered by AI, every payslip generated by a SafeRec-certified umbrella company is audited in real-time, and all payments are individually cross-referenced with RTI sent to HMRC. SafeRec checks there are no signs of malpractice and that the payslips have been processed per UK tax law and HMRC regulations. If an umbrella company makes an incorrect or non-compliant deduction, SafeRec will alert all supply chain members (you, your umbrella company and your agency/end client).

To view Churchill Knight Umbrella’s SafeRec certification, please click here.

Request a tailored take-home pay calculation

Churchill Knight Umbrella is a SafeRec-certified, FCSA-accredited, and leading PAYE umbrella company. Since we launched in 2017, we have quickly become one of the most popular umbrella companies in the UK and process payroll for thousands of contractors and freelancers each week.

To request a tailored take-home pay calculation, please call our Sales Consultants on 01707 871622 or complete our short online form. You can also request a callback for a time that suits you, and a team member will contact you to discuss the umbrella service.