What is the apprenticeship levy?

Wondering what the apprenticeship levy actually is? You’re not alone. In fact, according to a survey conducted by Grant Thornton, 45% of businesses don’t fully understand exactly what they are able to use the levy funds for

Introduced in 2017, the apprenticeship levy was created to address the UK’s shortage of skilled labour. Apprenticeships are for people of all ages to earn while they learn, and gain crucial skills to build a rewarding career.


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Who pays the apprenticeship levy? 


Organisations with an annual payroll exceeding £3 million pay the levy to invest in apprenticeship programs. The levy is set at a rate of 0.5% of the employer’s payroll, providing a dedicated fund for apprenticeship training.

If your organisation is not subject to the apprenticeship levy in the UK, it means that you likely have an annual pay bill of less than £3 million. As a result, you are not required to pay the levy, but you can still access government funding to support apprenticeship training.


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How to calculate the apprenticeship levy

Person using calculator to work out apprenticeship levy

Calculating the apprenticeship levy involves determining whether your organisation is liable to pay it and then figuring out the amount you owe. 

Here’s our step-by-step guide to calculate the apprenticeship levy:

  • Determine if you’re liable: The first step is to determine if your organisation is liable to pay the apprenticeship levy. In the UK, if your annual pay bill exceeds £3 million, you are required to pay the levy.
  • Calculate your annual pay bill: Your annual pay bill includes all payments to employees that are subject to employer Class 1 secondary National Insurance contributions (NICs). This includes wages, bonuses, commissions, and other taxable benefits. Exclude payments such as benefits in kind, expenses, and non-taxable earnings.
  • Apply the levy rate: The apprenticeship levy rate is set at 0.5% of your annual pay bill. If your pay bill is £3 million or more, you will pay 0.5% of your total pay bill minus the £15,000 annual apprenticeship levy allowance.
  • Report and pay: You need to report and pay the levy to HM Revenue and Customs (HMRC) through the PAYE process. The levy is typically paid monthly.
  • Access levy funds: Once you’ve paid the levy, you can access funds to spend on apprenticeship training for your organisation. The government provides a 10% top-up to your levy contributions, meaning for every £1 you pay into your apprenticeship service account, you get £1.10 to spend on apprenticeship training in England.

It’s essential to keep accurate records of your pay bill and levy payments to ensure compliance with HMRC regulations and to effectively manage your apprenticeship training budget.


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How does the apprenticeship levy work?

Apprenticeships are funded through co-investment, with both employers and the government jointly contributing to cover the delivery of the apprenticeship and assessment. Employers who do not pay the apprenticeship levy tax will make a 5% contribution. This does not cover the wages of apprentices.

Levy funds can only be used to pay for apprentices to achieve qualifications that are set out in their approved apprenticeship training programme and are deemed necessary to be effective in the job, such as a degree or a diploma.


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What should I do if I am not a levy-paying organisation?

  • Access government funding
    • Even if you don’t pay the levy, you can still access government funding to support the costs of apprenticeship training. The government covers 95% of the training costs, and you contribute the remaining 5%. This is known as “co-investment.”
    • If you employ fewer than 50 employees, the government will pay 100% of the apprenticeship training costs up to the funding band maximum for apprentices aged: 16 to 18. 19 to 24 with an education, health and care plan provided by their local authority or has been in the care of their local authority.
  • Find training providers
    • You’ll need to find a suitable training provider to deliver the apprenticeship training for your organisation. There are many accredited training providers available in the UK who can help design and deliver apprenticeship programs tailored to your needs.
  • Consider levy transfers
    • For levy payers, they can transfer up to 25% of their levy pot per year. This can be gifted to support smaller, non-levy paying organisations. 
    • You can apply to receive unspent levy funds and if successful you can use this to fund your 5% contribution to apprenticeship training costs. 
  • Take advantage of other funding initiatives
    • The government offers a £1,000 incentive payment for hiring a new apprentice if they are aged 16-18 years old; or if they are under 25 and have an education, health and care plan or have been in the care of their local authority.


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How long does the apprenticeship levy last?

The funds in your apprenticeship service account remain available for you to use for a period of 24 months from the date they enter your account. If you don’t use the funds within this timeframe, they will expire and be reclaimed by the government.

It’s essential to plan and utilise your levy funds effectively to ensure that you maximise the benefits of apprenticeship training for your organisation. If you find that you’re unable to spend your levy funds within the 24-month timeframe, you may consider transferring up to 25% of your levy funds to other employers or to apprenticeship training agencies. This can help ensure that the funds are used to support apprenticeship training and development. 


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Can the apprenticeship levy be used for existing staff?

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It is possible to use the apprenticeship levy to upskill existing staff. However, existing staff must also be allowed time for their off-the-job training. 

According to the National Apprenticeship Service (NAS), employers do not need to change the employee’s job title or contract of employment. It is important to remember that both the employer and apprentice need to sign an Apprenticeship Agreement. The same rule also applies that apprenticeship levy funds must be used within 24 months for existing staff. 


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How do I access my apprenticeship levy?

To access your apprenticeship levy funds in the UK, you need to follow these steps:

  • Set up your digital apprenticeship service account: If you’re a levy-paying employer, you need to register for the Apprenticeship Service online. During the registration process, you’ll need to provide information about your organisation and create an account.
  • Link your PAYE scheme: After registering, you’ll need to link your PAYE scheme(s) to your digital apprenticeship service account. This allows HM Revenue and Customs (HMRC) to collect your levy payments and transfer them to your account.
  • Receive levy payments: HMRC will calculate and collect your levy payments through the PAYE process. The funds will then be transferred into your digital apprenticeship service account on a monthly basis.
  • Access your funds: Once the funds are in your account, you can use them to pay for apprenticeship training and assessment. You can choose the apprenticeship standards or frameworks that best suit your organisation’s needs and pay for the training using your levy funds.


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Do schools and colleges pay the apprenticeship levy?

Schools and colleges do not typically pay the apprenticeship levy. The levy is applicable to employers in both the public and private sectors with an annual pay bill exceeding £3 million. Schools and colleges typically do not meet this threshold, as their pay bills are generally below this amount.

However, schools and colleges can still access government funding to support apprenticeship training for their staff members or for individuals they employ in non-teaching roles. They can leverage government funding just like other organisations, through the apprenticeship service to cover the costs of training, as mentioned earlier. 


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I want to employ an apprentice and take advantage of the levy. What should I do next? 

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That’s great news. You can reach out to our friendly apprenticeship team here at Access Industry, where our experts are on hand to answer any questions you may have. 

At Access Industry, we offer a variety of creative and digital apprenticeships. This ranges from software through to music, events, digital marketing and more. We work with organisations in a variety of industries and with state-of-the-art facilities and dedicated tutors, we are confident we will meet your training requirements. 

Book a consultation with an expert to learn more about our apprenticeships.

Last updated on: 30th April 2024