What is the Apprenticeship Levy?

What is the Apprenticeship Levy?

The Apprenticeship Levy is a payroll tax on UK employers used to fund new apprenticeships, and it’s considered an allowable expense for corporation tax purposes. This is charged at 0.5% of your annual pay bill, which is based on the total amount of earnings subject to Class 1 secondary Employers’ National Insurance contributions (NIC). This includes wages, bonuses, commissions, and pension contributions, but not benefits in kind or reimbursed expenses.

Employers with a pay bill over £3 million per year pay the levy only on the portion above this threshold, equivalent to any month where the pay bill exceeds £250,000. This is sometimes described as having a £15,000 “allowance”. In practice, this means you only pay on the excess above £3 million.

Funds are collected monthly through PAYE, and levy-paying employers in England receive a 10% government top-up to their Apprenticeship Service account. If your pay bill is below the threshold, you’re a non-levy employer and can still access government co-investment, covering 95% of training costs.

That being said, small employers can still benefit from full funding if the apprentice they are working with is aged 16-21, has an Education, Health and Care Plan (EHCP), or has previously been in care. So in these cases, the employer would not pay anything and can qualify for additional financial incentives.

In summary:

• Rate: 0.5% of your annual pay bill
• Allowance: £15,000 per tax year (applied monthly)
• Threshold: Only paid on the portion of your pay bill over £3 million per year (approx. £250,000 in any month)
• Collection: Paid monthly to HMRC through PAYE

If you don’t meet the £3 million threshold, you’re a non-levy employer, but you can still benefit from full funding when the apprentice meets certain criteria – and you can qualify for more incentives, too.

Levy vs. non-levy employers: what’s the difference?

Levy employers pay the levy, manage funds through the Apprenticeship Service, and must spend them within 24 months or lose them. Non-levy employers do not pay the levy but still benefit from subsidised training for both new hires and existing staff.

What’s new in 2025 and 2026?

From 1 August 2025:

• Minimum apprenticeship duration reduced from 12 to 8 months (where there’s no significant prior learning).
• Off-the-job training (OTJT) hours will be set per apprenticeship standard rather than the flat 20%

Looking ahead:

• The government plans to replace the Apprenticeship Levy with a Growth & Skills Levy, widening the range of training that can be funded.
• From 1 January 2026, public funding for Level 7 apprenticeships will be restricted to learners aged 16-21.

How you can use levy funds

Funds (or co-funding) can be used for apprenticeship training with an approved provider and End-Point Assessment services.

They cannot be used for wages, travel, statutory licences, traineeships, work placements, managerial overheads, or programme set-up costs.

How the levy is calculated

A levy-paying employer with 250 staff earning an average of £20,000 has a £5 million pay bill. The levy applies to the £2 million above the threshold, meaning an annual payment of £10,000 (0.5% × £2 million).

A non-levy employer with 100 staff and a £2 million pay bill pays no levy but can access 95% government co-investment for training.

Getting the most from your levy

Levy employers can invest in apprenticeships across all levels, from entry-level to senior leadership. Non-levy employers can upskill existing staff or recruit new talent with minimal cost. Don’t forget – funds expire after 24 months, so early planning is essential.

Example: An annual levy credit of £12,000 provides £1,000/month, with a £100/month government top-up, giving a total of £13,200 to spend on training.

England, Scotland, Wales, and Northern Ireland

Apprenticeship funding rules may differ by nation:

• England: Manage and spend your levy through the Apprenticeship Service.
• Scotland: apprenticeships.scot
• Wales: businesswales.gov.wales
• Northern Ireland: nidirect.gov.uk

Ready to maximise your funding?

Whether you’re a levy payer or not, we’ll help you use apprenticeship funding strategically. Let’s work together to fill skills gaps, future-proof your workforce, and grow your business.

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