Comparison · Business & Payroll · 2026
Apprenticeship Levy vs Non-Levy Employer 2026: How Funding Actually Differs
Only employers with a pay bill above £3 million actually pay the Apprenticeship Levy -- everyone else funds apprenticeship training through a completely different route. This guide compares both systems for 2026/27.
TL;DR -- 30-Second Summary
- • Levy charge: 0.5% of annual pay bill, offset by a £15,000 annual allowance
- • Only pay bills above £3 million pay the levy in practice -- 0.5% of £3m equals the £15,000 allowance
- • Levy-payers: spend digital funds via the apprenticeship service; unused funds expire after 24 months
- • Non-levy employers: use co-investment -- government funds the majority, employer pays the rest
- • Connected companies in a group must share a single £15,000 allowance, not one each
Side-by-Side Comparison
| Feature | Levy-paying employer | Non-levy employer |
|---|---|---|
| Pay bill threshold | Above £3 million | £3 million or below |
| Levy charge | 0.5% of pay bill, less £15,000 allowance | Fully offset -- nothing due |
| Training funding route | Digital apprenticeship service (DAS) funds | Government co-investment |
| Employer cash contribution to training | None extra -- drawn from levy funds already paid | Employer pays a minority share directly |
| Unused funds expiry | 24 months, rolling | N/A -- no pre-funded pot |
| Can receive transferred levy funds | N/A -- is the transferring party | Yes, from levy-payers up to a set transfer limit |
Worked Example: £5 Million Pay Bill vs £2 Million Pay Bill
Employer A has a £5 million annual pay bill; Employer B has a £2 million annual pay bill. Both use the standard 0.5% levy rate and £15,000 allowance for 2026/27.
| Measure | Employer A (£5m pay bill) | Employer B (£2m pay bill) |
|---|---|---|
| 0.5% of pay bill | £25,000 | £10,000 |
| Less £15,000 allowance | £10,000 levy due | £0 due (allowance covers it in full) |
| Training funding route | DAS digital funds | Co-investment |
Employer A pays £10,000 in levy over the year and builds digital apprenticeship funds to spend on training. Employer B\'s pay bill never generates a net levy liability, so it instead relies on co-investment, paying its own minority share of training costs directly to a provider as apprenticeships start.
Making the Most of It as a Levy-Paying Employer
Because the levy is charged whether or not it is spent, unused digital funds are a genuine sunk cost once they expire after 24 months. Planning apprenticeship starts proactively, or transferring unused funds to smaller connected or supply-chain employers, are the main ways levy-payers avoid losing value they have already paid for.
Making the Most of It as a Non-Levy Employer
Non-levy employers should budget for their co-investment share as a genuine cash cost rather than assuming apprenticeship training is fully funded, and should check whether a larger levy-paying business in their supply chain or group is able to transfer unspent digital funds to cover training costs instead.
Frequently Asked Questions
Frequently Asked Questions
Which employers actually pay the Apprenticeship Levy?
Every UK employer with an annual pay bill technically falls within the levy rules, but only employers with a pay bill above £3 million actually pay anything in practice. This is because every employer receives a £15,000 annual allowance that offsets the 0.5% levy charge, and 0.5% of £3 million is exactly £15,000 -- so any employer below that pay bill threshold has the levy charge fully cancelled out by the allowance before anything becomes due.
How is the 0.5% levy actually calculated and collected?
The levy is charged at 0.5% of an employer's total annual pay bill (broadly, total employee earnings subject to Class 1 secondary National Insurance) and is collected through PAYE alongside income tax and National Insurance, calculated and paid each pay period rather than as a single annual bill. The £15,000 allowance accrues at £1,250 a month and is offset against the running levy liability through the employer's Full Payment Submission.
What do levy-paying employers get for the money they pay in?
Levy funds appear as digital pounds in the employer's apprenticeship service account, which can only be spent on approved apprenticeship training and assessment costs with registered training providers -- not on apprentice wages, which the employer still pays separately in full. Unspent funds expire 24 months after they enter the account on a rolling basis, so levy-payers who do not actively plan apprenticeship starts can lose funds they have already paid for.
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How do non-levy employers fund apprenticeship training instead?
Employers below the £3 million pay bill threshold access government support through "co-investment" rather than a digital apprenticeship service account: the government funds the large majority of the agreed training cost, and the employer pays a smaller percentage directly to the training provider. This means non-levy employers never build up a pot of digital funds to spend -- they pay their share as training happens, alongside government-funded support.
Can a non-levy employer use levy funds instead of co-investing?
Yes, in a specific way -- levy-paying employers can transfer up to a set percentage of their unspent digital funds each year to other employers, including non-levy employers and their own supply chain, which the receiving employer can then use to fully fund apprenticeship training costs without co-investing themselves. This transfer mechanism is a deliberate route for larger levy-payers to support smaller connected businesses' apprenticeship funding.
What happens if connected companies are all below £3 million individually but linked?
Where companies are connected -- broadly, under common control as part of a group -- for levy purposes, they must nominate how to split a single £15,000 annual allowance between them rather than each entity claiming its own full allowance. A group of connected companies whose combined pay bill exceeds £3 million may therefore find itself paying the levy overall even if no single company in the group individually exceeds the threshold on its own payroll.
Does a non-levy employer still pay any Apprenticeship Levy at all?
Not in the vast majority of cases -- if the employer's pay bill genuinely stays below £3 million all year, the £15,000 allowance offsets the entire 0.5% charge and nothing is actually paid or collected through PAYE. The employer is still technically within the levy system and reports pay bill figures, but the net levy due is zero.
Do apprentice wages themselves differ between levy and non-levy employers?
No -- apprentice wages are entirely separate from the levy funding mechanism and are always paid in full by the employer regardless of levy status, subject to the apprentice minimum wage rate or National Minimum/Living Wage as applicable to the apprentice's age and year of the apprenticeship. Levy status only affects how the training and assessment costs (not the wage costs) are funded.
Is the Apprenticeship Levy changing to the Growth and Skills Levy?
The government has set out plans to evolve the Apprenticeship Levy into a broader Growth and Skills Levy, intended to give employers more flexibility to fund a wider range of training beyond apprenticeships alone. Details of scope and timing continue to be developed and rolled out in phases -- employers should check current gov.uk guidance for the latest confirmed position rather than assuming full flexibility is already in place.
Which system gives an employer better value for training its own staff?
For an employer already paying the levy because its pay bill exceeds £3 million, using the digital apprenticeship service funds is close to 'free' training from the employer's point of view, since the levy is charged regardless of whether it is spent on training or not -- so unspent funds are simply a sunk cost with no offsetting benefit. For a non-levy employer, co-investment still represents strong value since the government funds the majority of the cost, but it does require the employer to find its own percentage contribution in cash rather than drawing down a pre-funded pot.
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Disclaimer: This comparison is general information for 2026/27 based on standard Apprenticeship Levy rules and simplified assumptions. It is not tax or funding advice. Rules and thresholds can change -- check current gov.uk guidance or speak to your payroll provider before making decisions.