What Is the Apprenticeship Levy

Learn what the Apprenticeship Levy is, who pays it, how it works and how UK employers can use it to fund high-quality apprenticeship training.

What Is the Apprenticeship Levy?

The Apprenticeship Levy is a UK government initiative introduced in April 2017 to help fund apprenticeship training and encourage more businesses to invest in workforce development. It is a tax paid by large employers and is used to support the creation and delivery of high-quality apprenticeships across all sectors.

If you run a business or are considering hiring an apprentice, understanding how the levy works can help you access funding, upskill your team, and build long-term talent. In this article, we explain what the Apprenticeship Levy is, who pays it, how it is used and what it means for employers and apprentices alike.

What Is the Apprenticeship Levy?

The Apprenticeship Levy is a tax on UK employers with an annual payroll bill of more than £3 million. The money collected is held in a digital apprenticeship account that can be used by the employer to pay for apprenticeship training and assessment through approved providers.

The levy is part of the government’s plan to increase the number and quality of apprenticeships, ensuring businesses across the UK can access the skills they need while offering training and career opportunities to workers of all ages.

Who Pays the Apprenticeship Levy?

The levy applies to:

  • All UK employers across the public and private sectors

  • Employers with a total annual pay bill over £3 million

If your business meets these criteria, you must pay the levy whether or not you currently employ apprentices.

Smaller employers with a pay bill below the threshold do not pay the levy, but they can still benefit from government funding for apprenticeships through a system known as co-investment.

How Much Is the Levy?

The levy is charged at 0.5 percent of your annual pay bill. However, each employer receives an annual allowance of £15,000 to offset against the total liability. This means:

  • If your annual payroll is exactly £3 million, you will pay £15,000 in levy contributions

  • If your payroll is under £3 million, the allowance cancels out the levy entirely

  • If your payroll is £5 million, you will pay 0.5 percent of that (£25,000) minus the £15,000 allowance = £10,000

The levy is calculated and deducted monthly via PAYE, in the same way as income tax and National Insurance contributions.

What Is a Digital Apprenticeship Service Account?

Levy-paying employers have access to a Digital Apprenticeship Service (DAS) account, where their levy funds are held. From this account, employers can:

  • Find and choose apprenticeship training providers

  • Select suitable apprenticeship standards or frameworks

  • Manage and track payments

  • Allocate funds to specific apprenticeships

  • Access a 10 percent government top-up on monthly contributions

Funds in the account must be used within 24 months, or they will expire and return to HMRC.

What Can Levy Funds Be Used For?

Levy funds can be used to pay for:

  • Apprenticeship training with approved training providers

  • End-point assessments for completing the apprenticeship

  • New or existing employees of any age, provided the training is eligible

Levy funds cannot be used for:

  • Apprentice wages

  • Travel and accommodation

  • Tools and equipment

  • Management or recruitment costs

  • Training not listed on the approved apprenticeship list

To ensure compliance, all training must be delivered by a registered training provider listed on the Education and Skills Funding Agency (ESFA) register.

What If You Don’t Use Your Funds?

Unused funds in your digital account expire after 24 months. The account works on a rolling basis, so funds from May 2023 will expire in May 2025 unless they are spent.

If you cannot use all your funds, you can choose to transfer up to 25 percent of your annual levy to other businesses, such as supply chain partners or charities. This helps support apprenticeships in smaller organisations while putting your unused funds to good use.

What If You Don’t Pay the Levy?

Even if your business does not pay the Apprenticeship Levy, you can still hire apprentices. Under the co-investment model:

  • The government pays 95 percent of the training costs

  • Your business pays the remaining 5 percent

  • If your business has fewer than 50 employees, and you hire an apprentice aged 16 to 18, the government covers 100 percent of the training cost

This system allows smaller businesses to access high-quality training at very low cost.

Final Thoughts

The Apprenticeship Levy is more than just a tax. It is a tool to help employers invest in talent, fill skills gaps and build stronger, more capable teams. While it is mandatory for large employers, businesses of all sizes can benefit from the funding and support available.

By using your levy funds wisely, or by accessing co-investment if you are a smaller employer, you can create valuable learning and career opportunities for both new and existing staff while helping your business grow.