How Is the Apprenticeship Levy Calculated

Find out how the Apprenticeship Levy is calculated, who pays it, and how the £15000 allowance affects your business contributions.

How Is the Apprenticeship Levy Calculated?

If you are an employer in the UK with a growing payroll, you may be required to contribute to the Apprenticeship Levy. Introduced in 2017, the levy is part of a government initiative to increase funding for apprenticeship training and to give employers more control over how apprenticeship programmes are delivered.

Whether you are new to the levy or just need a refresher, understanding how it is calculated is crucial. In this article, we explain how the Apprenticeship Levy is worked out, who it applies to, how the allowance works, and how the money is collected and used.

Who Pays the Apprenticeship Levy?

The levy applies to all UK employers with a total annual payroll bill of more than £3 million. This includes private businesses, charities, and public sector organisations. If your payroll is under that threshold, you do not need to pay the levy, although you can still access government-funded apprenticeship training through a separate co-investment model.

Employers who meet the £3 million threshold are legally required to pay the levy through the PAYE system each month.

How Is the Levy Calculated?

The Apprenticeship Levy is calculated as:

0.5 per cent of your total annual pay bill, minus a £15,000 annual allowance.

Your pay bill is defined as the total earnings that are subject to Class 1 National Insurance contributions, including:

  • Wages and salaries

  • Bonuses and commissions

  • Pension contributions

  • Statutory payments (such as maternity or sick pay)

The calculation applies to your entire UK pay bill, even if some of your employees do not live in England or are not directly involved in apprenticeship training.

Example Calculation

Let’s say your business has a total annual pay bill of £5 million. You would calculate your Apprenticeship Levy as follows:

  1. 0.5 per cent of £5,000,000 = £25,000

  2. Subtract the £15,000 annual allowance = £10,000 levy due for the year

This £10,000 is then paid in monthly instalments through PAYE. In this case, that would be around £833.33 per month.

If your annual pay bill were exactly £3 million, the calculation would be:

  1. 0.5 per cent of £3,000,000 = £15,000

  2. Subtract the £15,000 allowance = £0 to pay

So while the levy technically applies to any employer, the £15,000 allowance effectively exempts smaller businesses from paying it.

What Is the £15,000 Allowance?

The £15,000 allowance is not a tax rebate. Instead, it is an amount you can offset against your levy liability each year. The allowance applies per employer, not per PAYE scheme. This means that if you operate multiple PAYE schemes, you must split the £15,000 allowance across all schemes.

Connected companies or charities (such as those under common control or ownership) are only entitled to one allowance to share between them.

How and When Is the Levy Paid?

The levy is paid monthly via your usual PAYE process, alongside Income Tax and National Insurance. HMRC calculates the amount owed based on your reported pay bill and automatically collects the correct amount.

Each month you will:

  • Report your total payroll to HMRC

  • Claim any portion of the £15,000 allowance you have not yet used

  • Pay the remaining levy balance (if any)

You must declare this on your Employer Payment Summary (EPS). If your monthly levy payment works out to less than £15,000 annually, then no payment will be taken.

What Happens to the Money You Pay?

Once paid, your levy funds go into a digital apprenticeship service account, which you can access via the Apprenticeship Service portal. The government adds a 10 per cent top-up to your monthly contributions, giving you more spending power.

These funds can be used to pay for:

  • Apprenticeship training

  • End-point assessments

  • Apprenticeship standards or frameworks from approved providers

You must use your digital funds within 24 months of payment. Any unused funds after that period expire and are returned to the government.

What If You Do Not Use Your Allowance?

If your pay bill is under £3 million and you do not pay the levy, you can still access apprenticeships through the co-investment model. Under this system:

  • The government pays 95 per cent of training and assessment costs

  • You contribute the remaining 5 per cent

If your business has fewer than 50 employees and you take on apprentices aged 16 to 18, you may not have to pay anything at all.

Final Thoughts

The Apprenticeship Levy is calculated at 0.5 per cent of your annual payroll, with a £15,000 allowance offsetting the amount owed. It is paid monthly via PAYE and used to fund apprenticeship training through a digital account. While it applies only to large employers, all businesses can benefit from the apprenticeship system through either the levy or the co-investment model.

By understanding how the levy works and how it is calculated, you can plan ahead, make full use of your allowance, and invest in developing your workforce more effectively.