Guide

Apprenticeship Levy for large employers

Mandatory 0.5% payroll levy for employers with £3 million+ annual pay bill, how to use levy funds for apprenticeship training through the digital apprenticeship service, and significant reforms under the Growth and Skills Levy from April 2026.

UK-wide

The Apprenticeship Levy is a 0.5% tax on annual payroll costs that applies to employers with a pay bill of £3 million or more per year. If your pay bill is below this threshold, you do not pay the levy — but you can still hire apprentices and receive government funding.

The levy was introduced in April 2017 under the Finance Act 2016 to fund apprenticeship training across the UK. Employers who pay the levy receive digital funds to spend on approved apprenticeship training in England. From April 2026, the levy is being reformed as the Growth and Skills Levy, which broadens the range of training it can fund.

Connected companies and pay bill aggregation

The £3 million threshold applies to your combined pay bill if your organisation is part of a group of connected companies or charities. Two companies are connected for levy purposes if one controls the other, or both are under common control — using the same tests as the Employment Allowance connected entity rules.

Key rules for connected groups:

  • Aggregated threshold test: all connected companies' pay bills are combined to determine whether the group exceeds £3 million — even if no individual company reaches the threshold on its own
  • Single annual allowance: the group shares one £15,000 annual allowance, divided equally among connected entities (or split by agreement reported to HMRC)
  • Separate reporting: each connected company reports and pays its own levy share through its own PAYE scheme via the Employer Payment Summary (EPS)
  • Common scenarios: parent companies with subsidiaries, franchise groups under common ownership, NHS trusts and foundation trusts, housing associations and their subsidiary companies

If you are unsure whether the connected entity rules apply to your organisation, HMRC has published detailed Guidelines for Compliance covering complex group structures.

Reporting and paying the levy

You calculate and pay the Apprenticeship Levy monthly alongside your normal PAYE remittance. The process works as follows:

  1. Calculate monthly liability: take your monthly pay bill (all earnings subject to employer Class 1 National Insurance contributions), multiply by 0.5%, then deduct one-twelfth of your annual £15,000 allowance (£1,250 per month)
  2. Report on your EPS: include the levy amount due on your Employer Payment Summary submitted to HMRC
  3. Pay with your PAYE: the levy is paid alongside your income tax, National Insurance contributions, and student loan deductions by the normal PAYE payment deadline (22nd of the following month for electronic payments, 19th for postal payments)
  4. Year-end adjustment: if your total annual pay bill turns out to be below £3 million, HMRC will refund any overpaid levy through your PAYE account

Your payroll software should handle levy calculations automatically once you have confirmed your connected company status and allowance allocation.

Using your digital apprenticeship service account

Levy payments appear as funds in your apprenticeship service account on the government's Manage Apprenticeships service. This is where you commit funding to apprenticeship training. Before you can spend levy funds, you must:

  • Create an account: register on the apprenticeship service at manage-apprenticeships.service.gov.uk using your Government Gateway credentials and your employer PAYE reference
  • Set up your organisation: link your PAYE schemes, confirm connected company relationships, and set permissions for team members who will manage apprenticeships
  • Add apprentices: create apprenticeship records, select a training provider, choose the apprenticeship standard, and agree a price within the funding band

Your account balance updates monthly as new levy payments are credited. You can view your current balance, committed funds, and upcoming expiry dates at any time.

Choosing apprenticeship training

Levy funds can only be spent on approved apprenticeship standards delivered by training providers on the Register of Apprenticeship Training Providers (RoATP). Apprenticeship frameworks (the older qualification structure) have been fully replaced by standards in England.

Each apprenticeship standard has a funding band — the maximum amount the government will contribute towards training and end-point assessment. You negotiate the actual price with your training provider, but the apprenticeship service will not pay more than the funding band cap. If you agree a price above the cap, you pay the difference directly.

What levy funds can and cannot pay for

  • Can pay for: training delivery by the main provider, end-point assessment by an approved organisation, English and maths training (if the apprentice needs it)
  • Cannot pay for: apprentice wages, travel and subsistence costs, managerial costs, traineeships, work equipment, the cost of setting up an apprenticeship programme

Foundation apprenticeships

From August 2025, foundation apprenticeships are available in England for young people aged 16 to 21 (or up to 25 for care leavers or those with an Education, Health and Care Plan). These are shorter programmes in priority sectors including construction, engineering and manufacturing, digital, and health and social care. Foundation apprenticeships have a minimum duration of 8 months (reduced from 12 months for standard apprenticeships).

Transferring levy funds to other employers

If you cannot use all your levy funds, you can transfer a portion to other employers to support their apprenticeship programmes. Since 22 April 2024, the transfer allowance has been 50% of your annual levy funds (increased from 25%).

How transfers work:

  • You choose the recipient: transfers are arranged directly between employers — you might support businesses in your supply chain, sector partners, or local SMEs
  • The recipient uses the funds: the receiving employer creates the apprenticeship record and the transferred funds cover 100% of the agreed training cost (up to the funding band maximum)
  • You remain in control: you can set conditions on how transferred funds are used (for example, specifying the apprenticeship standard or sector) and can cancel uncommitted transfers
  • No top-up on transfers: the 10% government top-up does not apply to transferred funds

Transfers are managed through your apprenticeship service account. The receiving employer must also have an apprenticeship service account to accept funds.

Small employers and co-investment

Employers with a pay bill under £3 million do not pay the levy but can still hire apprentices with government funding support. The co-investment model has changed significantly:

  • Apprentices under 25 (from August 2025): the government pays 100% of training costs for non-levy-paying employers — no employer co-investment is required. This was extended from the previous under-22 threshold in the Autumn Budget 2025
  • Apprentices aged 25 and over: the government pays 95% and the employer pays 5% co-investment. There is no annual cap on the number of apprentices or total co-investment
  • 16-18 year olds: an additional £1,000 incentive payment is made to the employer (paid in two instalments at 90 days and 365 days)
  • Employer NI relief: employers do not pay employer National Insurance contributions for apprentices aged under 25 who earn less than £50,270 per year

Non-levy employers access funding by creating an apprenticeship service account and reserving funding for up to 10 apprenticeship starts per year.

Growth and Skills Levy reforms from April 2026

The government is reforming the Apprenticeship Levy into the Growth and Skills Levy from April 2026, broadening the range of training it can fund while tightening some current flexibilities. The underlying 0.5% levy charge and £3 million threshold remain unchanged. The key changes are:

What is changing

  • Shorter fund expiry: levy funds will expire after 12 months instead of 24 months, requiring faster planning and commitment of funds
  • 10% top-up removed: the government will stop adding the 10% top-up to levy accounts, reducing overall spending power
  • Higher co-investment when funds are exhausted: levy-paying employers who use all their levy balance will pay 25% co-investment (up from 5%) on additional apprenticeships, with the government contributing 75%
  • Apprenticeship units: from April 2026, employers can use levy funds to pay for shorter, modular training courses ('apprenticeship units') in England, not just full apprenticeship programmes — a significant expansion of what the levy can fund
  • Level 7 funding restricted: from January 2026, public funding for Level 7 apprenticeships (masters-degree equivalent) is only available for new apprentices aged 16 to 21 (or up to 25 for care leavers or those with an EHCP). Employers wanting Level 7 apprenticeships for adults aged 22 and over must fund them entirely themselves. Apprentices who started before January 2026 continue to be funded to completion

What employers should do now

  • Review your current levy account balance and plan spending before the 12-month expiry window takes effect
  • Assess whether any planned Level 7 apprenticeships for over-22s need to start before funding is withdrawn
  • Budget for higher co-investment rates if you regularly exhaust your levy balance
  • Monitor announcements from Skills England on the new apprenticeship units and foundation apprenticeship standards

  1. Check whether the levy applies to you

    Calculate your total annual pay bill (all earnings subject to employer Class 1 secondary NI contributions) across all connected companies and PAYE schemes. If the combined figure exceeds £3 million, you must pay the levy.

  2. Set up your apprenticeship service account

    Register at manage-apprenticeships.service.gov.uk, link your PAYE schemes, and allocate your £15,000 allowance if you have connected companies. This is where you will manage and commit your levy funds.

  3. Choose an apprenticeship standard and training provider

    Search the Institute for Apprenticeships website for approved standards in your sector. Select a training provider from the Register of Apprenticeship Training Providers and negotiate a price within the funding band.

  4. Consider transferring unused funds

    If you cannot use all your levy funds, transfer up to 50% to other employers (such as supply chain partners or local SMEs) through your apprenticeship service account before funds expire.

  5. Plan for Growth and Skills Levy changes

    Review the 12-month fund expiry, removal of the 10% top-up, and higher co-investment rates taking effect from April 2026. Assess whether Level 7 apprenticeships for over-22s need to start before January 2026 to retain public funding.

DBS checks for employers

When and how to request Disclosure and Barring Service (DBS) checks for employees. Includes check types, fees, regulated activity rules, and devolved nation differences.

Read guide

Manage redundancies correctly

How to make employees redundant fairly and legally. Covers collective consultation requirements, fair selection criteria, statutory redundancy pay calculations for 2025/26, and Northern Ireland differences.

Read guide

Working time: legal limits and rest breaks

Legal requirements for maximum working hours, rest breaks, and annual leave. Covers the 48-hour weekly limit, opt-out agreements, rest entitlements, night worker protections, and holiday pay calculations for employers.

Read guide