Apprenticeship Levy (UK)

A mandatory UK tax charged at 0.5% of an employer's annual pay bill when it exceeds 3 million pounds, collected monthly through PAYE to fund apprenticeship training via a Digital Apprenticeship Service account.

What Is the Apprenticeship Levy?

Key Takeaways

  • ✓The Apprenticeship Levy is a UK payroll tax of 0.5% charged on employers with an annual pay bill exceeding 3 million pounds, introduced in April 2017 under the Finance Act 2016.
  • ✓Every employer receives a 15,000 pound monthly allowance, meaning only pay bill amounts above 3 million pounds per year are taxed. An employer with a 5 million pound pay bill pays 0.5% on the 2 million pound excess: 10,000 pounds annually.
  • ✓Levy funds are deposited into a Digital Apprenticeship Service (DAS) account with a 10% government top-up, giving employers 110% of their contribution to spend on approved apprenticeship training.
  • ✓Funds expire 24 months after they enter the account. Unspent levy doesn't get refunded. It returns to the government's apprenticeship budget.
  • ✓Approximately 2% of employers in England pay the levy, but these organizations employ around 60% of the UK workforce, making the scheme's reach far wider than its payer base suggests (CIPD, 2024).

The Apprenticeship Levy is a tax. Not a voluntary contribution. Not an optional training fund. Every UK employer with a pay bill above 3 million pounds pays it, regardless of whether they plan to hire apprentices. The UK government introduced the levy in April 2017 to shift apprenticeship funding away from taxpayers and onto large employers. The logic was straightforward: big employers benefit most from a skilled workforce, so they should pay to develop one. Before the levy, government-funded apprenticeship programs had been shrinking for years, and employers frequently complained about skills gaps without investing in training themselves. The levy changed that conversation. Now, large employers have money sitting in a Digital Apprenticeship Service account. They can spend it on approved apprenticeship standards, from Level 2 (equivalent to GCSEs) through Level 7 (equivalent to a master's degree). If they don't spend it within 24 months, they lose it. This "use it or lose it" structure was designed to encourage employers to actually train people, not just pay and forget.

0.5%Levy rate applied to an employer's total annual pay bill above the 15,000 pound monthly allowance (HMRC, 2024)
3.5B poundsTotal Apprenticeship Levy revenue collected annually across England (House of Commons Library, 2024)
24 monthsWindow for employers to spend levy funds before they expire and return to government
2%Of employers in England pay the levy, but they account for roughly 60% of all employment (CIPD, 2024)

How the Apprenticeship Levy Works

The mechanics are surprisingly simple. The complications come from spending the money, not collecting it.

Calculation and collection

Each month, HMRC calculates 0.5% of your total pay bill (all employee earnings subject to Class 1 secondary National Insurance contributions). From this amount, they subtract your monthly allowance of 15,000 pounds (annual allowance of 180,000 pounds divided by 12). The remaining amount is your levy payment for that month. You report and pay it through your regular PAYE process. For connected companies (groups with multiple PAYE schemes), the 15,000 pound monthly allowance is shared across the group. A holding company with 10 subsidiaries doesn't get 10 allowances. They get one, split however they choose.

The Digital Apprenticeship Service (DAS) account

Levy payments appear in your DAS account within about six weeks of the PAYE payment date. The government adds a 10% top-up to everything that arrives. So if you paid 100,000 pounds in levy, your DAS account shows 110,000 pounds available. You use this account to find apprenticeship training providers, choose apprenticeship standards, set up apprenticeships for your employees, and pay training costs directly to providers. The account also tracks your spending, expiring funds, and transfer activity.

Fund expiry rules

Funds leave your DAS account on a first-in, first-out basis. Each monthly deposit expires 24 months after it was credited. If you paid 10,000 pounds into the account in March 2025, that specific 10,000 pounds expires in March 2027. The government doesn't send reminders. Your DAS dashboard shows upcoming expiry dates, but you need to check it regularly. Many large employers lost significant funds in the first two years after the levy launched because they hadn't set up apprenticeship programs quickly enough.

Levy Calculation Examples

Seeing the numbers makes the formula concrete. Here's how the levy works at different pay bill sizes.

Annual Pay BillLevy (0.5%)Annual AllowanceNet Levy PaidDAS Balance (with 10% top-up)
2,000,000 pounds10,000 pounds15,000 pounds0 pounds (below threshold)0 pounds
3,000,000 pounds15,000 pounds15,000 pounds0 pounds (at threshold)0 pounds
5,000,000 pounds25,000 pounds15,000 pounds10,000 pounds11,000 pounds
10,000,000 pounds50,000 pounds15,000 pounds35,000 pounds38,500 pounds
50,000,000 pounds250,000 pounds15,000 pounds235,000 pounds258,500 pounds
100,000,000 pounds500,000 pounds15,000 pounds485,000 pounds533,500 pounds

How to Spend Levy Funds

Levy funds can only be spent on approved apprenticeship training and assessment. They can't cover wages, travel, equipment, or textbook costs.

Eligible spending

Levy funds pay for apprenticeship training delivery by an approved provider and end-point assessment (EPA) by an approved assessment organization. That's it. The training must follow an approved apprenticeship standard (there are over 680 standards available as of 2024, spanning Level 2 through Level 7). Each standard has a funding band that caps the maximum amount the government will contribute. If training costs exceed the band cap, the employer pays the difference out of pocket. Training can cover existing employees upskilling into apprenticeship programs, not just new hires.

Funding band caps

Every apprenticeship standard has a maximum funding band set by the Institute for Apprenticeships and Technical Education (IfATE). For example, a Level 3 Business Administrator apprenticeship has a cap of 5,000 pounds, while a Level 7 Senior Leader apprenticeship (essentially an MBA) has a cap of 14,000 pounds. If your chosen provider charges 18,000 pounds for a Level 7 program, the DAS account covers 14,000 pounds and you pay the remaining 4,000 pounds directly. Negotiating with providers is normal. Many providers price at or near the funding band maximum, but costs are negotiable.

Transferring unused levy to other employers

Since April 2019, levy-paying employers can transfer up to 25% of their annual levy funds to other employers, including smaller businesses in their supply chain. This is done through the DAS platform. The receiving employer sets up the apprenticeship, and the transferring employer approves the funding. Large employers use this to support smaller suppliers, develop talent pipelines in partner organizations, or simply avoid losing funds to expiry. Some sectors have created levy transfer networks where multiple large employers pool transfer offers.

Apprenticeship Funding for Non-Levy Employers

Employers with pay bills under 3 million pounds don't pay the levy, but they can still access government apprenticeship funding.

Co-investment model

Non-levy employers pay 5% of apprenticeship training costs, with the government covering the remaining 95%. For a 10,000 pound apprenticeship, the employer pays 500 pounds and the government pays 9,500 pounds. This is significantly more generous than the levy system. Small employers with fewer than 50 employees pay nothing at all for apprentices aged 16 to 18 (or 19 to 24 with an education, health, and care plan). The government covers 100% of training costs for these groups.

Receiving transferred levy funds

Non-levy employers can receive transferred funds from levy-paying organizations. When this happens, the receiving employer pays 0% of training costs (the transfer covers everything up to the funding band cap). This makes levy transfers extremely attractive for small employers. The catch is finding a levy-paying employer willing to transfer. Some providers and sector bodies act as brokers, connecting levy payers with small employers who need funding.

Common Challenges with the Apprenticeship Levy

Since 2017, employers and training providers have identified several persistent problems with the levy system.

  • Fund expiry pressure: the 24-month window pushes some employers to spend on low-priority apprenticeships just to avoid losing money, which undermines training quality.
  • Funding band caps don't always reflect actual training costs, especially for specialized or technical apprenticeships in sectors like engineering and healthcare.
  • Administrative burden: managing the DAS account, selecting providers, monitoring apprentice progress, and tracking fund expiry requires dedicated staff time that many employers underestimated.
  • Quality variation among training providers is significant. Ofsted ratings range widely, and employers don't always have the expertise to evaluate provider quality before committing funds.
  • The 25% transfer cap limits how much levy payers can redirect to their supply chains. Many large employers have argued for a higher cap, particularly in sectors where supply chain skills directly affect their own operations.
  • Degree apprenticeships (Levels 6 and 7) consume a large share of levy spending, raising concerns that the levy is subsidizing university education for existing employees rather than creating new opportunities for young people.

Proposed Reforms and the Growth and Skills Levy

The UK government has signaled plans to reform the Apprenticeship Levy into a broader Growth and Skills Levy. Here's what's been proposed and what it means for employers.

What's changing

The proposed Growth and Skills Levy would allow employers to spend up to 50% of their levy funds on non-apprenticeship training, including shorter courses, modular qualifications, and bootcamp-style programs. The remaining 50% would still be reserved for apprenticeships. This addresses the common complaint that the current system is too rigid. An employer who needs to upskill 200 employees in data analysis shouldn't have to put all 200 through a full 18-month apprenticeship when a 12-week course would achieve the same result.

What it means for HR teams

If the reforms proceed, HR and L&D teams will have more flexibility but also more complexity to manage. They'll need to evaluate a wider range of training options, track spending across apprenticeship and non-apprenticeship categories, and ensure the new flexibility doesn't dilute the quality of training programs. The administrative burden may increase before it decreases. Early planning is worth the effort: employers who develop their training strategy now will be better positioned when the new rules take effect.

Apprenticeship Levy Statistics [2026]

Key data points on the UK's apprenticeship system and levy performance.

3.5B pounds
Annual levy revenue collected across EnglandHouse of Commons Library, 2024
337,140
Apprenticeship starts in England in 2022/23 academic yearDepartment for Education, 2024
680+
Approved apprenticeship standards available across all sectors and levelsIfATE, 2024
59%
Of levy-paying employers report using all or most of their levy fundsCIPD, 2024

Frequently Asked Questions

Do all UK employers pay the Apprenticeship Levy?

No. Only employers with an annual pay bill exceeding 3 million pounds pay the levy. That's roughly 2% of employers in England. Smaller employers access apprenticeship funding through the co-investment model, where they pay 5% of training costs and the government covers 95%. Employers with fewer than 50 staff pay nothing for apprentices aged 16 to 18.

Can levy funds be used for existing employees or only new hires?

Both. Levy funds can pay for apprenticeships for existing employees who are upskilling or reskilling, as well as for new hires starting an apprenticeship. Many large employers use the majority of their levy funds on existing staff through programs like degree apprenticeships (Level 6 and 7). The employee must be spending at least 20% of their time on off-the-job training as part of the apprenticeship.

What happens if an apprentice leaves before completing the program?

The employer stops making monthly payments to the training provider from the point the apprentice leaves. Any funds already paid for training delivered aren't refundable. Remaining uncommitted funds stay in the DAS account and can be allocated to other apprenticeships. If the apprentice was the last one and the employer has unused funds, those funds will still expire 24 months after they were deposited.

Can the levy be spent on training that isn't an apprenticeship?

Under current rules, no. Levy funds can only be spent on approved apprenticeship standards and end-point assessments. They can't cover conferences, short courses, professional certifications, or other training types. The proposed Growth and Skills Levy reform would change this by allowing up to 50% of funds to be spent on non-apprenticeship training, but this hasn't been enacted yet as of early 2026.

How does the levy work for employers operating across the UK?

The levy is collected UK-wide through HMRC, but apprenticeship policy is devolved. England, Scotland, Wales, and Northern Ireland each have their own apprenticeship systems. Levy funds are allocated proportionally based on where your employees work. If 80% of your workforce is in England, 80% of your levy goes to your English DAS account. The remaining 20% goes to the devolved nations, which operate their own funding mechanisms. Scotland, for example, uses its share to fund a broader range of workforce development programs beyond apprenticeships.

Is the 10% government top-up applied to transferred funds?

No. The 10% top-up applies only to levy funds deposited into the paying employer's own DAS account. When funds are transferred to another employer, the receiving employer gets the base amount without the additional 10%. However, the receiving employer still pays 0% of training costs from the transferred funds, making it a better deal than the standard co-investment model where they'd pay 5%.
Adithyan RKWritten by Adithyan RK
Surya N
Fact-checked by Surya N
Published on: 25 Mar 2026Last updated:
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