Who Pays the Apprenticeship Levy

Who Pays the Apprenticeship Levy?

The Apprenticeship Levy is a UK government policy introduced in April 2017 to increase investment in workforce training and help fund apprenticeship programmes. It places a financial responsibility on larger employers to contribute to the development of skills across the workforce. But who exactly pays the Apprenticeship Levy, and how does it work?

In this article, we explain who is required to pay the Apprenticeship Levy, how it is calculated, and what it means for both large and small businesses.

What Is the Apprenticeship Levy?

The Apprenticeship Levy is a tax on UK employers to help fund apprenticeships and improve the quality of vocational training. The money collected is stored in a digital account that employers can use to pay for apprenticeship training and end-point assessments, delivered by approved providers.

It applies across England, Scotland, Wales and Northern Ireland, although the funding rules differ slightly by region.

Who Pays the Apprenticeship Levy?

The Apprenticeship Levy must be paid by all UK employers whose total annual payroll bill is more than £3 million.

This includes:

• Public sector organisations (e.g. NHS trusts, schools, local councils)

• Large private sector businesses

• Charities and not-for-profit companies

• Groups of connected companies, where the combined payroll exceeds £3 million

If your organisation’s total gross payroll is less than £3 million, you do not have to pay the levy. However, you may still benefit from government-funded apprenticeships under the co-investment scheme, where most of the cost is subsidised.

How Is the Apprenticeship Levy Calculated?

The levy is charged at 0.5 percent of your total annual payroll. To reduce the impact on smaller businesses, each employer receives an annual allowance of £15,000 to offset against their liability.

Here is how it works in practice:

• If your payroll is £3 million, your levy is:
  0.5 percent of £3 million = £15,000
  Minus the £15,000 allowance = £0 to pay

• If your payroll is £5 million, your levy is:
  0.5 percent of £5 million = £25,000
  Minus the £15,000 allowance = £10,000 levy owed annually

The levy is paid monthly through the PAYE system, alongside income tax and National Insurance contributions.

What Counts as a Payroll Bill?

Your annual payroll bill includes all earnings subject to Class 1 National Insurance contributions, such as:

• Salaries and wages

• Bonuses and commissions

• Overtime

• Statutory pay (e.g. maternity or sick pay)

• Pension contributions

It applies across your entire organisation, including employees in all UK nations.

What If You Are Part of a Group of Companies?

If your organisation is part of a group of connected companies, such as a holding company with several subsidiaries, the £15,000 levy allowance must be shared across the group.

For example, if your group includes three companies and has a total payroll of £9 million, you can allocate the allowance across those three businesses as you choose. HMRC must be informed of how you wish to split the allowance at the beginning of the tax year.

Do Small Businesses Pay the Levy?

No. Employers with a payroll bill under £3 million do not pay the Apprenticeship Levy. However, they are still eligible for heavily subsidised training through the government’s apprenticeship co-investment scheme.

Under this scheme:

• The government pays 95 percent of the training and assessment costs

• The employer pays just 5 percent

• Employers with fewer than 50 staff may receive 100 percent funding if the apprentice is aged 16 to 18

This makes apprenticeships accessible to smaller businesses without requiring them to contribute to the levy.

What Happens to the Money Paid?

Levy-paying employers have access to their funds through a Digital Apprenticeship Service (DAS) account. The government adds a 10 percent top-up to monthly contributions.

Funds can be used to pay for:

• Apprenticeship training

• End-point assessments

• Approved training providers and courses

Unused funds expire after 24 months, so it is important for employers to plan their apprenticeship strategy and use the available balance efficiently.

Can You Transfer Levy Funds?

Yes. Employers who pay the Apprenticeship Levy can transfer up to 25 percent of their annual levy funds to other organisations.

This helps support apprenticeships in smaller businesses, supply chains or within the same industry sector. Both the transferring and receiving employers must be registered on the apprenticeship service portal.

Final Thoughts

The Apprenticeship Levy is paid by UK employers with annual payroll bills over £3 million. It is calculated at 0.5 percent of the total payroll and is paid monthly through PAYE. While it only affects large employers, smaller businesses can still access funded apprenticeship training through co-investment.

For businesses of all sizes, understanding the levy system is key to making the most of available training opportunities, supporting staff development and ensuring long-term growth.