Answers · UK 2025/26

How does the Apprenticeship Levy work for employers?

The Apprenticeship Levy applies to UK employers with an annual pay bill above £3 million, who must pay 0.5% of their total pay bill into a digital apprenticeship account each month, offset by a £15,000 annual allowance -- funds in the account, topped up by 10% from government, can then be spent on approved apprenticeship training within a rolling 24-month window before they expire.

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The Apprenticeship Levy, introduced in April 2017, is a payroll charge designed to fund apprenticeship training in England, and understanding how it's calculated and spent matters for larger employers and, indirectly, for anyone considering an apprenticeship as a route into a career. **Who has to pay it** Any UK employer (across all sectors, connected companies counted together where relevant) with an annual pay bill exceeding £3 million must pay the levy -- the pay bill broadly means total employee earnings subject to Class 1 secondary National Insurance contributions, including wages, bonuses, and commissions. **How the levy is calculated** Liable employers pay 0.5% of their total annual pay bill, but each employer also receives a £15,000 annual "levy allowance" which offsets the amount actually due -- in practice this means the levy only becomes payable once 0.5% of the pay bill exceeds £15,000, i.e., once the pay bill exceeds £3 million (0.5% × £3,000,000 = £15,000). The levy is collected monthly through PAYE, alongside Income Tax and National Insurance. **The digital apprenticeship service account** Levy payments are collected by HMRC but then made available to the employer through a separate online "apprenticeship service" account, with the government adding a 10% top-up on top of whatever the employer pays in -- so for every £100 paid into the levy, £110 becomes available to spend on training. **What the funds can be spent on** Funds in the account can only be spent on the costs of apprenticeship training and end-point assessment with an approved training provider -- they cannot be used to cover apprentices' wages, other employment costs, or training that isn't part of a recognised apprenticeship standard. **The 24-month expiry window** Each monthly levy payment (plus its 10% top-up) sits in the digital account for 24 months from the date it enters the account -- if it isn't spent on apprenticeship training within that rolling window, it expires and is reclaimed, which is why larger employers need active workforce planning to avoid losing levy funds unused. **Non-levy employers and co-investment** Smaller employers below the £3 million threshold don't pay the levy directly, but can still access government support for apprenticeship training through "co-investment" -- historically the government pays a substantial majority of the training cost (with the employer paying the remainder), making apprenticeships significantly subsidised even for non-levy-paying businesses. **Transferring levy funds to other employers** Levy-paying employers can transfer up to a percentage of their annual levy funds to other employers (for example, smaller businesses in their supply chain) to fund apprenticeships there, which is a useful option for large employers who consistently have unspent levy funds heading towards expiry. **Practical tip** Employers with a pay bill approaching £3 million should model whether they're likely to become levy-liable in the near future, since the levy is triggered automatically through PAYE once the pay bill crosses the threshold, and unspent funds expiring after 24 months represent a real cost if apprenticeship training isn't planned proactively.