Understanding the Apprenticeship Levy

What is the apprenticeship levy?

The Apprenticeship Levy is a tax that applies to all UK employers with an annual pay bill exceeding £3 million. Employers contribute 0.5% of their pay bill above the £3 million threshold into a Levy account, which is then used to fund apprenticeship training.

 Who Pays the Apprenticeship Levy?

  • Employers with an annual pay bill over £3 million are required to pay the Levy

  • Employers below this threshold do not pay but can still access government funding for apprenticeships

How is the levy calculated?

Threshold: Only the portion of the pay bill over £3 million is subject to the Levy.

  1. Rate: 0.5% of the pay bill above £3 million is collected.

  2. Allowance: Employers receive a £15,000 annual allowance to offset their Levy liability.

Example:

  • Pay bill: £5 million.

  • Levy: (£5 million - £3 million) x 0.5% = £10,000.

How the levy funds are used.

Levy payments go into a digital Apprenticeship Service (AS) account, which employers can access to pay for apprenticeship training with approved providers.

 Key Points:

  • Funds can only be spent on apprenticeship training and assessment (not salaries or other expenses)

  • Apprenticeship providers must be registered with the Register of Apprenticeship Training Providers (RoATP)

  • Funds must be spent within 24 months, after which they expire if unused

Sharing levy funds.

Levy-paying employers can transfer up to 25% of their unused Levy funds to other employers, such as:

  • Small and medium-sized enterprises (SMEs).

  • Supply chain partners or local businesses.

This ensures unused funds benefit other organisations and stay within the community.

 

Government co-investment for non-levy-paying employers.

If your business does not pay the Levy or has spent all its Levy funds, the government offers significant support:

  • The government funds 95% of apprenticeship training costs

  • Employers only need to contribute 5% of the total cost

Example:

  • Training cost: £10,000

  • Employer contribution: £500 (5%)

  • Government contribution: £9,500 (95%)