Apprenticeship Levy 2026: Guide for UK Employers
How the UK Apprenticeship Levy works in 2026: 0.5% on payroll above £3 million, the £15,000 allowance, digital accounts, incentive payments for hiring apprentices, and the reforms under way.
The UK Apprenticeship Levy has now been running for eight years since its introduction in April 2017, channelling billions into employer-funded apprenticeship training across England. For large employers paying into the system, maximising use of the digital account is a financial priority -- unspent funds expire after 24 months. For smaller employers accessing co-investment, apprenticeships can be a highly cost-effective route to developing talent, with the government covering 95% of training costs. In 2026/27, the levy continues in its current form while government consultation on a successor "Growth and Skills Levy" remains ongoing.
How the levy is calculated
The Apprenticeship Levy is charged at 0.5% of the employer's annual UK pay bill, minus a £15,000 allowance per employer. The pay bill includes all earnings on which Class 1 NI is payable -- wages, salaries, bonuses, and some benefits in kind.
Example calculation:
A company with a pay bill of £6 million:
- 0.5% x £6,000,000 = £30,000
- Minus £15,000 allowance
- Annual levy payable: £15,000 (£1,250/month via PAYE)
The £15,000 allowance means the levy effectively starts at pay bills above £3 million (0.5% x £3,000,000 = £15,000, exactly offset by the allowance). Employers with a pay bill below £3 million pay zero levy.
Connected businesses (employer groups) must split the £15,000 allowance between them -- they cannot each claim the full allowance. The employer group nominates one company to claim the allowance or splits it proportionally.
The levy is reported and paid monthly alongside PAYE payroll submissions, declared on the Employer Payment Summary (EPS). It is an employment cost, not a business tax -- it cannot be set against corporation tax as a trading expense (though the apprentice wages paid are of course deductible).
The digital account: use it or lose it
Levy payments are credited to the employer's digital apprenticeship service account within approximately 10 weeks of payment (there is a 10% government top-up -- so a £15,000 levy payment becomes £16,500 in the account). Funds in the account:
- Can only be spent on approved apprenticeship training and end-point assessment with registered providers.
- Expire after 24 months -- if not spent, they are reclaimed by the government.
- Cannot be used for apprentice wages, travel, accommodation, or other employment costs.
- Apply to apprenticeships in England only (Scotland, Wales and Northern Ireland have separate funding arrangements).
Large employers with high staff turnover, seasonal pay bills, or sectors where apprenticeship standards are limited (some professional services) frequently find their accounts accumulating unspent funds. The 24-month expiry is a hard deadline -- there is no extension.
Non-levy employers: co-investment and full funding
Employers with a pay bill below £3 million do not pay the levy, but they can still access government funding for apprenticeships through the co-investment model:
- Government pays 95% of training and assessment costs.
- Employer pays 5% (directly to the training provider).
- For most apprenticeship standards with a maximum funding band of £5,000-£15,000, the employer's 5% cost ranges from £250 to £750 for a full apprenticeship.
Full funding (zero employer contribution) applies when the apprentice:
- Is aged 16-18, or
- Is aged 19-24 and has been in local authority care, or
- Is aged 19-24 with an Education, Health and Care (EHC) plan.
This makes young apprentices in particular extremely low-cost for small employers to train through formal apprenticeship programmes.
Incentive payments for hiring apprentices
Beyond the training funding, employers receive direct cash incentive payments:
| Apprentice category | Incentive payment |
|---|---|
| Aged 16-18 at start | £1,000 |
| Aged 19-24 with EHC plan or care leavers | £1,000 |
Payments are made in two instalments: 50% at 90 days and 50% at 365 days of the apprenticeship start. Payments are made by the Education and Skills Funding Agency (ESFA) directly to the employer.
These incentives are separate from levy or co-investment funding and are available to both levy and non-levy employers.
Transferring levy funds: supporting your supply chain
Levy-paying employers can transfer up to 25% of their annual levy funds to other employers to fund apprenticeship training. This was introduced to reduce the £3 billion+ in unspent levy funds that expire each year.
Common transfer scenarios:
- A large manufacturer transfers funds to smaller supply chain companies to fund technical apprenticeships.
- A large retailer supports smaller franchise operators.
- Group companies support their subsidiaries or partner organisations.
Transfers must be to a connected employer or, since 2023, to any employer registered on the Apprenticeship Service. The transferring employer chooses how much and to whom; there is no minimum transfer amount.
Apprenticeship pay rates in 2026/27
Apprentices are entitled to the National Minimum Wage apprentice rate of £7.55/hour in 2026/27 if they are:
- Under 19 years old, or
- 19 or over and in the first year of their apprenticeship.
Once an apprentice is 19+ and past their first year, they are entitled to the full National Living Wage (£12.71/hour for those aged 21+) or the NMW rate for their age band if under 21.
Many employers pay above the minimum to attract candidates -- particularly for degree-level and higher apprenticeships where competition for places is stronger.
The proposed Growth and Skills Levy
The government has signalled an intention to reform the Apprenticeship Levy into a broader Growth and Skills Levy that would allow employers to spend some of their levy funds on non-apprenticeship training -- short courses, modules, and skills bootcamps. This would address criticism that the current levy is inflexible and forces large employers to fund apprenticeships even when their skills needs are better addressed by shorter interventions.
As of June 2026, the Apprenticeship Levy continues in its current form. Any transition to the Growth and Skills Levy will require primary legislation and significant lead time. Employers should plan their 2026/27 apprenticeship programmes on the existing levy basis.
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Frequently asked questions
Who has to pay the Apprenticeship Levy?
UK employers with an annual pay bill above £3 million. The levy is 0.5% of the total pay bill above £3 million, after deducting the £15,000 annual allowance. It is paid monthly via PAYE.
What is the £15,000 allowance?
Every employer that pays the levy receives a £15,000 annual allowance, reducing their levy bill. For an employer with a £4 million pay bill, the levy is 0.5% x (£4 million - £3 million) = £5,000 -- well below the £15,000 allowance, so they pay nothing.
Where does the Apprenticeship Levy money go?
Levy funds are credited to the employer's digital apprenticeship service account. They can only be spent on approved apprenticeship training and assessment with registered training providers. Funds expire after 24 months if unspent.
Can small businesses use apprenticeship funding without paying the levy?
Yes. Non-levy employers (pay bill below £3 million) can access government co-investment funding. The government pays 95% of training costs; the employer pays 5%. Some employers pay nothing if they hire certain categories of apprentice.
What incentive payments are available for hiring apprentices?
Employers receive incentive payments for hiring apprentices aged 16-18 (£1,000) and for hiring apprentices aged 19-24 who have previously been in care or have an Education, Health and Care Plan (£1,000). These are paid to the employer by the ESFA in two instalments.
Can levy funds be transferred to other employers?
Yes. Levy-paying employers can transfer up to 25% of their annual levy funds to other employers (including supply chain partners and smaller businesses) to pay for their apprenticeship training. This flexibility was introduced to reduce unspent levy balances.
What are apprenticeship funding bands?
Each approved apprenticeship standard has a maximum funding band -- the cap on how much government or levy funds can be spent on training for that apprenticeship. Training costs above the band must be paid by the employer.
Are apprentices entitled to the National Living Wage?
Apprentices aged 21+ are entitled to the full NLW (£12.71/hour from April 2026). Apprentices under 19, or in their first year of an apprenticeship, can be paid the apprentice rate (£7.55/hour in 2026/27) -- significantly below the NLW.
What reforms to the Apprenticeship Levy are planned?
The government has proposed replacing the Apprenticeship Levy with a broader 'Growth and Skills Levy' that allows some funds to be spent on non-apprenticeship training. Consultation is ongoing; the Apprenticeship Levy continues in its current form for 2026/27.
How do I access my apprenticeship levy account?
Via the Apprenticeship Service at apprenticeships.education.gov.uk. You will need a Government Gateway account linked to your PAYE reference.
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