Is it possible to crop a single layer, I can almost get the desired outcome using the eraser on a layer but surely it can be done with cropping?
Use a layer mask. Tutorials galore exist on the topic already, eg: http://helpx.adobe.com/photoshop/using/masking-layers.html
Straight from Adobe:
You can add a mask to a layer and use the mask to hide portions of the layer and reveal the layers below. Masking layers is a valuable compositing technique for combining multiple photos into a single image or for making local color and tonal corrections.
I can't believe no one suggested this yet:
Just use the rectangular marquee to select what you want to crop down to, and COPY it to your clipboard. Then delete the entire layer and PASTE what you copied to a new layer.
This is especially useful if the layer you're cropping is larger than the canvas, in which case the select-inverse technique is messy.
You can also select the area you want to crop to with the rectangular marquee tool, invert your selection, then delete the now selected outside area. This is different from the layer mask in that it completely deletes the surrounding area, whereas the mask makes the surrounding area invisible.
If you want to be able to change the size or shape of your crop you can also just make shape in a seperate layer and clip your image with a clipping mask on your shape. If you group the two after that you can move them as one. If you do this you're still able to change to shape of your crop afterwards.
If you convert the layer in question to a smart object then edit the smart object, you can crop the layer. When you save and close the smart object and revert back to the original stack of layers, the cropped layer is smaller and can be moved around in the larger image. Here is how I did it, although there may be shortcuts: (1) Left click on the layer to be cropped and select "convert to smart object" (2) Once the conversion is complete double-click on the layer icon to open the smart object (3) Crop the image as desired (4) Save and close the cropped layer, which returns you to the original layer stack. The cropped layer can now be moved around as needed. If more edits are needed on the layer, you will have to reopen it as a smart object. By telling PS not to delete the cropped pixels, I was also able to reopen the smart object and change the crop in a later edit.
A very easy trick: just crop it in another tab and move it back (screenshot here).