Apprenticeship Levy (UK)
A UK payroll tax of 0.5% charged on employers with an annual pay bill exceeding £3 million, collected through PAYE and deposited into a Digital Apprenticeship Service (DAS) account to fund approved apprenticeship training and End-Point Assessment.
- What Is the Apprenticeship Levy (UK)?
- How to Calculate the Apprenticeship Levy
- The Digital Apprenticeship Service (DAS) Account
- Transferring Levy Funds to Other Employers
- Why Employers Struggle to Spend Their Levy
- Levy Reform: Growth and Skills Levy Proposals
- What Non-Levy Employers Need to Know
- Apprenticeship Levy Statistics [2025/26]
- Maximising Your Levy Spend: Practical Tips
- Frequently Asked Questions About the Apprenticeship Levy
What Is the Apprenticeship Levy (UK)?
Key Takeaways
- ✓The Apprenticeship Levy is a 0.5% tax on employers with a UK annual pay bill exceeding £3 million. It was introduced in April 2017 by the UK government to increase employer investment in apprenticeship training.
- ✓Employers receive a £15,000 annual allowance to offset against the levy, meaning the effective threshold is a pay bill of £3 million. Only roughly 2% of UK employers (about 27,000 businesses) pay the levy, but they employ a large share of the UK workforce.
- ✓Levy funds are deposited monthly into the employer's Digital Apprenticeship Service (DAS) account. The government tops up each deposit with a 10% supplement, so £1,000 of levy becomes £1,100 of spending power.
- ✓Funds can only be spent on approved apprenticeship training and End-Point Assessment delivered by registered providers. They can't be used for wages, travel, equipment, recruitment costs, or any other business expense.
- ✓Unspent levy funds expire 24 months after they enter the DAS account. In 2022/23, an estimated £3.3 billion in levy was collected, but only £2.5 billion was actually spent on apprenticeships (CIPD/NAO), meaning hundreds of millions returned to the Treasury.
The Apprenticeship Levy is a payroll tax. That's what it is at its core, regardless of the training language wrapped around it. If your UK pay bill exceeds £3 million per year, you pay 0.5% of your entire pay bill, minus a £15,000 annual allowance. That money goes into a ring-fenced account on the Digital Apprenticeship Service, and you can only spend it on apprenticeship training with approved providers. The government introduced the levy in April 2017 with the stated goal of increasing apprenticeship quality and quantity. Before the levy, apprenticeship funding came from general taxation, and employer investment in training had been declining for decades. The levy was supposed to change that by giving employers a financial incentive to train: spend it on apprenticeships or lose it. The reality has been more complicated. Many large employers struggle to spend their full levy allocation. The restrictions on what it can fund are tight. You can't use it for conference attendance, short courses, professional certifications that aren't apprenticeships, or internal training programmes. It's apprenticeships or nothing. This has pushed some employers toward expensive degree-level apprenticeships for existing senior staff as a way to maximise spend, which critics argue diverts funds from entry-level training where they'd have more impact.
How to Calculate the Apprenticeship Levy
The calculation itself is straightforward. The complexity lies in defining what counts as your pay bill and managing the monthly collections.
Monthly calculation
The formula is: (Monthly pay bill x 0.5%) - (£15,000 / 12). The £15,000 annual allowance is applied monthly at £1,250 per month. For an employer with a £10 million annual pay bill, the monthly calculation looks like this: (£833,333 x 0.005) - £1,250 = £4,167 - £1,250 = £2,917 per month. Over 12 months, that's £35,000 in levy payments. Each monthly payment receives a 10% government top-up when it enters the DAS account, turning that £2,917 into £3,209 of apprenticeship spending power.
What counts as pay bill
The pay bill includes all earnings subject to Class 1 secondary NICs. This means gross wages, salaries, bonuses, commissions, overtime, sick pay, maternity/paternity pay, and benefits in kind reported through payroll. It does not include employer pension contributions, benefits in kind not processed through payroll, or payments to self-employed contractors. For companies with multiple PAYE schemes, you can split the £15,000 allowance across schemes, but the total can't exceed £15,000. Connected companies (as defined by the Employment Allowance connected company rules) share a single £15,000 allowance.
Reporting and payment
The levy is declared and paid through your regular PAYE reporting via the Employer Payment Summary (EPS). You report the levy due and the allowance used each month. HMRC collects it alongside your other PAYE liabilities. If you don't submit an EPS declaring your allowance, HMRC will charge the full 0.5% without the offset. Getting this wrong in month one means overpaying until it's corrected. Your payroll provider or software should handle this automatically, but it's worth verifying.
The Digital Apprenticeship Service (DAS) Account
The DAS is the online platform where levy funds are managed, training providers are selected, and apprenticeship commitments are authorised. Think of it as a ring-fenced bank account that only works at approved training shops.
Setting up and managing DAS
Every levy-paying employer must register for a DAS account at apprenticeships.education.gov.uk. The account holder (typically someone in HR or L&D) can add apprentices, choose training providers, approve payments, and monitor fund balances. Multiple users can be added with different permission levels. The DAS dashboard shows your current balance, monthly levy deposits, top-ups, and fund expiry dates. It also shows committed funds (allocated to current apprentices) and available funds (uncommitted and ready to allocate). Monitoring the 24-month expiry window is critical. Funds expire on a first-in, first-out basis.
Spending levy funds
Funds can be spent on apprenticeship training and assessment with providers on the Register of Apprenticeship Training Providers (RoATP) and End-Point Assessment Organisations (EPAO register). Each apprenticeship standard has a maximum funding band. If your chosen provider charges less than the band, you pay less. If they charge more, you pay the difference out of pocket, and that additional cost can't come from the DAS. Payment to providers is made monthly in arrears, spread across the duration of the apprenticeship. A 20% completion payment is held back and released only after the apprentice passes their End-Point Assessment.
Fund expiry rules
Funds expire 24 months after they enter your DAS account. This is calculated on a rolling monthly basis, not annually. The oldest funds are used first (FIFO). For an employer depositing £3,000 per month, the £3,000 deposited in April 2024 will expire in April 2026 if not committed to an apprentice. Once funds are committed to an apprentice (i.e., you've set up the apprenticeship on DAS), they're protected from expiry for the duration of that apprenticeship, even if the programme runs beyond the 24-month window. Uncommitted funds simply disappear. There's no refund, no rollover, and no appeal.
Transferring Levy Funds to Other Employers
Since April 2019, levy-paying employers can transfer unused funds to other organisations. This is one of the most underused features of the levy system.
Transfer rules and limits
Employers can transfer up to 50% of their annual levy funds to any number of receiving employers. The transfer is arranged directly between the two organisations through the DAS. The receiving employer doesn't need to be a levy payer. Small businesses, charities, schools, and supply chain partners can all receive transferred funds. The sending employer chooses which apprenticeship standard and provider to fund. Transfers can also go through Apprenticeship Transfer Agencies, which act as intermediaries matching donors with recipients.
Strategic uses for levy transfers
Many large employers use levy transfers to strengthen their supply chain. A major retailer might transfer funds to a small supplier to train warehouse staff. A construction firm might fund apprenticeships at subcontractor companies. Some employers transfer funds to local schools and colleges to support teaching apprenticeships. This builds goodwill, strengthens partnerships, and ensures the levy funds don't expire unused. Some sectors have created pooled transfer schemes where multiple levy payers contribute to a shared pot that funds apprenticeships across smaller businesses in their industry.
Why Employers Struggle to Spend Their Levy
Despite having millions in their DAS accounts, many large employers consistently underspend. The reasons are structural, not just operational.
Restrictive spending rules
The levy can only fund apprenticeship training and assessment. It can't cover the apprentice's salary, travel expenses, equipment, accommodation for block release, management time spent supervising, or any other cost. For a degree apprenticeship costing £27,000 in training fees, the total employer cost including salary, supervision, and productivity loss can easily reach £100,000+. The levy covers less than a third of that. This means the levy isn't really "free training." It's subsidised training that still requires significant additional investment.
Limited relevance for some sectors
Not every business need maps to an apprenticeship standard. A tech company might need staff trained in a specific cloud platform or programming language, but the nearest apprenticeship standard is a broad "Software Developer" programme that takes 18 months. The company doesn't need 18 months of training. It needs a 3-week intensive course. But short courses aren't fundable through the levy. Financial services firms face similar challenges: compliance training, regulatory updates, and product-specific knowledge don't fit into apprenticeship structures. This forces a choice between spending the levy on programmes that aren't quite what the business needs, or letting the money expire.
Administrative burden
Setting up each apprenticeship on DAS requires selecting a provider, negotiating a price, completing a commitment statement, and managing ongoing progress reviews. For a company running 500 apprenticeships, this is a substantial administrative workload. Many L&D teams weren't built for this. They're programme designers and facilitators, not procurement and contract managers. The operational overhead of levy management has created an entire cottage industry of apprenticeship consultancies that help employers plan, implement, and manage their levy spending.
Levy Reform: Growth and Skills Levy Proposals
The levy has been controversial since its launch. Both employers and policymakers have proposed changes, and reform is expected in the coming years.
What employers want changed
The most common employer demand is flexibility. They want the levy to fund a broader range of training, not just apprenticeships. The Confederation of British Industry (CBI), the CIPD, and the British Chambers of Commerce have all called for the levy to be rebranded as a "Skills Levy" or "Growth and Skills Levy" that covers modular courses, bootcamps, and professional qualifications. Employers also want the 24-month expiry window extended or removed, arguing that training plans shouldn't be forced into an arbitrary timeline.
The Growth and Skills Levy proposal
The Labour government elected in 2024 proposed converting the Apprenticeship Levy into a Growth and Skills Levy. Under these proposals, employers would be able to spend up to 50% of their levy funds on non-apprenticeship training, including shorter accredited courses and modular qualifications. The exact details are still being finalised through consultation with employers, training providers, and sector bodies. Any reform faces a tension: broadening what the levy can fund risks reducing apprenticeship starts, which are already below pre-levy levels in some age groups. The government must balance employer flexibility with its commitment to creating apprenticeship opportunities, particularly for young people.
What Non-Levy Employers Need to Know
If your pay bill is under £3 million, you don't pay the levy. But you can still access apprenticeship funding through government co-investment.
Co-investment model
The government pays 95% of the apprenticeship training cost (up to the funding band maximum). You pay the remaining 5%. For a Level 3 apprenticeship with a £9,000 funding band, your cost is £450 over the entire programme. For employers with fewer than 50 employees hiring apprentices aged 16 to 18, the government pays 100%. There's no 5% employer contribution. This makes apprenticeships effectively free for small businesses hiring young learners.
Receiving transferred levy funds
Non-levy employers can receive transferred funds from levy-paying organisations. When this happens, the transfer covers 100% of the training cost with no employer contribution required. This is a better deal than co-investment because there's no 5% to pay. Many industry bodies and local enterprise partnerships (LEPs) maintain lists of levy-paying employers willing to transfer funds. Some large employers actively seek small businesses in their supply chain to transfer funds to. If you're a non-levy employer, it's worth reaching out to your larger customers or partners to ask about levy transfer opportunities.
Apprenticeship Levy Statistics [2025/26]
Key figures that reveal how the levy is working in practice, including collection, spending, and employer behaviour.
Maximising Your Levy Spend: Practical Tips
Don't let your levy funds expire. Here are concrete actions to increase utilisation.
- Audit your DAS account quarterly. Check which funds are closest to the 24-month expiry and prioritise spending those first. Set calendar reminders 6 months before expiry for each monthly deposit.
- Build an apprenticeship pipeline, not just a programme. Map every role in your organisation to a relevant apprenticeship standard. Many HR, finance, marketing, IT, and management roles have matching standards at Levels 3 through 7.
- Use levy transfers before funds expire. If you can't spend your allocation internally, transfer up to 50% to supply chain partners, local charities, or schools. It's better to fund someone else's apprentice than to lose the money.
- Work with multiple training providers. No single provider excels across all standards. Use specialists for technical apprenticeships and generalists for management and business standards.
- Involve line managers early. Apprenticeship programmes fail when the manager sees the apprentice as a burden rather than an investment. Brief managers on their role, the 20% training commitment, and the expected timeline before the apprentice starts.
- Combine new hire and existing employee apprenticeships. New hires at Levels 2 and 3 build the talent pipeline. Existing staff at Levels 4 through 7 develop leadership capability. A balanced mix delivers the strongest ROI across the organisation.
Frequently Asked Questions
Do all UK employers pay the Apprenticeship Levy?
Can levy funds be used for anything other than apprenticeships?
What happens to unspent levy funds?
Can multinational companies use UK levy funds for apprenticeships in other countries?
How does the levy interact with Scotland, Wales, and Northern Ireland?
Is the 10% government top-up applied to transferred funds?
Written by Adithyan RK