The apprenticeship levy is a tax paid by large employers in the UK to fund apprenticeship training.
It was introduced in 2017 to increase the number and quality of apprenticeships. The levy applies only to employers with large annual pay bills.
This guide explains who pays the apprenticeship levy, how it works and how the money is used.
What Is the Apprenticeship Levy?
The apprenticeship levy is a 0.5 percent charge on an employer’s annual pay bill.
It applies to employers with a pay bill of more than £3 million per year.
Employers receive an annual levy allowance of £15,000 to offset against the charge.
Who Pays the Apprenticeship Levy?
Only large employers pay the levy.
An employer must pay the levy if:
- Their annual pay bill exceeds £3 million.
Smaller employers do not pay the levy directly.
How Is the Levy Calculated?
The levy is calculated as:
0.5 percent of the employer’s total annual pay bill, minus a £15,000 allowance.
Example
If a company has a £5 million annual pay bill:
- 0.5 percent of £5 million = £25,000
- Minus £15,000 allowance = £10,000 levy payment
The employer would pay £10,000 in apprenticeship levy for that year.
What Is Included in the Pay Bill?
The pay bill includes:
- Wages
- Bonuses
- Commissions
- Pension contributions
It does not include payments such as benefits in kind.
How Is the Levy Paid?
Employers report and pay the levy through the Pay As You Earn (PAYE) system.
The amount is declared monthly through payroll reporting.
How Do Employers Use Levy Funds?
Levy payments are credited to a digital apprenticeship service account.
Employers can use these funds to:
- Pay for apprenticeship training
- Pay for end-point assessments
Funds cannot be used to pay apprentice wages.
Do Levy Funds Expire?
Yes. Levy funds expire 24 months after they enter the employer’s digital account if they are not used.
Unused funds return to the government to support other apprenticeship programmes.
What About Employers Who Do Not Pay the Levy?
Employers who do not pay the levy can still hire apprentices.
The government usually covers 95 percent of the training cost. The employer contributes the remaining 5 percent.
Small employers may receive additional support in certain circumstances.
Can Levy-Paying Employers Transfer Funds?
Levy-paying employers can transfer up to 25 percent of their unused funds to other employers.
This supports apprenticeships in smaller businesses and supply chains.
Why Was the Apprenticeship Levy Introduced?
The levy was introduced to:
- Increase employer investment in skills
- Expand apprenticeship opportunities
- Improve training standards
It shifts more responsibility for training funding to larger employers.
Does the Levy Affect Apprentices?
The levy does not change the legal rights of apprentices.
It helps fund training programmes but does not directly determine apprentice wages.
Key Points
- The levy is 0.5 percent of annual pay bills over £3 million.
- Employers receive a £15,000 allowance.
- Funds are used for training and assessment, not wages.
- Funds expire after 24 months if unused.
- Non-levy employers receive government co-funding.
The apprenticeship levy is a funding system designed to support training and expand apprenticeship opportunities across the UK.