Apprenticeship levy: what UK employers pay and how to use it

Published Wednesday 19 August 2026

Table of contents

• What is the apprenticeship levy?
• What is the Growth and Skills Levy?
• Who pays and how much do you pay?
• How do you pay and report the levy?
• How do you use apprenticeship levy funds?
• What if you do not pay the levy?
• How do you track the levy and training costs in your accounts?
• Simplify apprenticeship levy accounting with Xero
• FAQs on the apprenticeship levy

Key takeaways

• The apprenticeship levy is a UK employer charge of 0.5% of your annual pay bill, with a £15,000 yearly allowance. You pay it monthly through Pay As You Earn (PAYE) if your annual pay bill is over £3 million.
• You can use levy funds to pay for approved apprenticeship training and assessment. Funds expire after a set period on a rolling basis, so plan spending to avoid loss.
• The government is transitioning to a broader Growth and Skills Levy, which will give employers more flexibility in how they use levy funds beyond traditional apprenticeships.
• Smaller employers that do not pay the levy can still access funded apprenticeships through government support. Rules differ across the UK nations.

What is the apprenticeship levy?

The apprenticeship levy is a charge on UK employers designed to fund apprenticeship training across the country. Large employers with an annual wage bill over £3 million are required to contribute to the levy at a rate of 0.5%, which then funds apprenticeship training. The levy applies to businesses operating in England, Scotland, Wales, and Northern Ireland, though each nation has its own rules for how employers access and spend the funds.

If your annual pay bill exceeds £3 million, you pay the levy through your monthly PAYE process. The government collects the funds and makes them available through a digital apprenticeship service account, which you use to pay approved training providers. Smaller employers below the £3 million threshold do not pay the levy but can still access government-funded apprenticeship support.

The levy aims to increase the quality and quantity of apprenticeships, helping businesses build skilled workforces while giving individuals opportunities to earn and learn. Understanding what the apprenticeship levy is and how it works is essential for payroll planning, compliance, and making the most of your training budget.

How the levy works across the UK

While the levy itself is UK-wide, the way you access and use funds differs by nation. Here is a summary of how each nation operates.

• England: Levy-paying employers use the digital apprenticeship service to manage funds, pay training providers, and track spending. Non-levy employers receive government support covering 95% of training costs.
• Scotland: The levy is collected by HMRC, but funds are not ring-fenced for individual employers. Instead, the Scottish Government provides direct funding to training providers, and employers work with them to access apprenticeship places.
• Wales: Similar to Scotland, the Welsh Government funds training providers directly. Employers collaborate with providers to arrange apprenticeships, regardless of whether they pay the levy.
• Northern Ireland: The Department for the Economy manages apprenticeship funding. Employers engage with training providers who receive government funding to deliver apprenticeships.

If you operate across multiple UK nations, you pay the levy once based on your total UK pay bill, but you access training support according to the rules in each nation where you employ apprentices.

What is the Growth and Skills Levy?

The UK government has announced plans to transition towards a broader Growth and Skills Levy framework. This is a reformed version of the apprenticeship levy, announced as part of the 2024 Skills England agenda. It replaces the existing apprenticeship levy with a broader funding framework designed to give employers more flexibility in how they use levy funds for training and skills development.

The core mechanics remain the same: if your annual pay bill exceeds £3 million, you pay 0.5% of your pay bill through PAYE, with a £15,000 annual allowance. What changes is what you can spend those funds on.

Some implementation details for the Growth and Skills levy are still being developed, so employers should monitor GOV.UK updates for confirmed timelines and eligibility rules.

Apprenticeships under the Growth and Skills Levy

Apprenticeships remain the primary product under the Growth and Skills Levy. Existing apprenticeship standards continue, and you can still use your levy funds to pay for approved training and end-point assessment through the apprenticeship service.

The government is also streamlining apprenticeship standards to make them shorter and more flexible, particularly for sectors with high skills demand. Leadership and management apprenticeships are a specific focus, with updated standards designed to make it easier for employers to upskill existing staff.

Foundation apprenticeships and other new products

Foundation apprenticeships are a new entry-level product being introduced under the Growth and Skills Levy. They are designed for people with no prior experience in a sector, giving employers a funded route to bring in and train new talent at a lower level before progressing to a full apprenticeship.

Alongside foundation apprenticeships, the government is developing apprenticeship units: shorter, modular training components that employers can fund through their levy account without committing to a full apprenticeship programme. These will be rolled out over time, so you should monitor GOV.UK for timelines.

The transition to the Growth and Skills Levy is gradual. Your current levy payments, apprenticeship service account, and existing apprentice agreements are not affected immediately. Check the Skills England guidance on GOV.UK for the latest implementation dates and product availability.

Who pays and how much do you pay?

You are an apprenticeship levy employer if your annual pay bill is over £3 million. The levy is charged at 0.5% of your total annual pay bill, but every employer receives a £15,000 apprenticeship levy allowance each year, which reduces the amount you actually pay.

The allowance is applied automatically through PAYE, so you only pay levy on the portion of your pay bill that exceeds £3 million. For example, if your annual pay bill is £4 million, you calculate 0.5% of £4 million (£20,000), then subtract the £15,000 allowance, leaving £5,000 to pay over the year.

Connected companies and the allowance

If you operate multiple companies under common ownership or control, you are treated as connected companies for levy purposes. Connected companies share a single £15,000 allowance across the group, not one allowance per company. You must decide how to split the allowance across your PAYE schemes and notify HMRC of the allocation.

This prevents larger groups from claiming multiple allowances and ensures fairness across the system. Check HM Revenue and Customs (HMRC) guidance on connected companies if you are part of a group structure, and review your allocation annually to reflect changes in your business.

Changes in 2026 and beyond

The government periodically reviews apprenticeship funding rules. For apprenticeship levy 2026 and beyond, stay updated on any changes to rates, allowances, or how funds can be used. HMRC and the Department for Education publish updates on GOV.UK, and your accountant or payroll provider can help you adjust calculations and reporting if rules change.

How do you calculate the levy in three steps?

Calculating your monthly levy payment is straightforward once you understand the formula. Follow these three steps.

1. Calculate 0.5% of your annual pay bill. Multiply your total annual pay bill by 0.005 to get the gross levy amount for the year. For example, if your annual pay bill is £5 million, you multiply £5,000,000 by 0.005 to get a gross levy of £25,000.
2. Subtract the £15,000 allowance. Deduct the annual allowance from the gross levy to find your net annual levy. Using the same example, £25,000 minus £15,000 leaves a net annual levy of £10,000.
3. Divide by 12 to get the monthly amount. Divide the net annual levy by 12 to calculate how much you pay each month through PAYE. In this example, £10,000 divided by 12 gives a monthly payment of £833.33, which you report and pay through your PAYE Employer Payment Summary (EPS).

What counts in your pay bill?

Your pay bill includes most payments to employees that are subject to Class 1 National Insurance contributions. This typically includes the following items:

• Gross wages and salaries
• Bonuses and commissions
• Overtime pay
• Statutory sick pay
• Statutory shared parental pay

Exclusions from the pay bill include the following:

• Payments to self-employed contractors or freelancers (not on your payroll)
• Benefits in kind exempt from Class 1 National Insurance (such as certain pension contributions)
• Redundancy payments above the statutory limit
• Employer pension contributions

Use your payroll records to calculate the total pay bill accurately. If you use payroll software, it should already track the figures you need. Double-check inclusions and exclusions each year to avoid overpaying or underpaying the levy.

How do you use the £15,000 allowance?

The apprenticeship levy allowance is a fixed annual amount of £15,000 that reduces your levy bill. It is applied automatically each month through PAYE, so you do not need to claim it separately. The monthly allowance is £1,250 (£15,000 ÷ 12), which is deducted from your gross monthly levy before you calculate the payment.

If you operate multiple PAYE schemes, you can split the allowance across them, but the total across all schemes cannot exceed £15,000 per year. Notify HMRC of your chosen allocation using your payroll software or PAYE online account.

Connected companies share one £15,000 allowance across the group. You must agree internally how to split the allowance and inform HMRC. If you do not notify HMRC, the allowance defaults to the first PAYE scheme that reports a levy payment, which may not reflect your preferred allocation.

Review your allowance allocation annually, especially if your business structure or pay bill changes. Proper allocation ensures you minimise levy costs and avoid disputes with HMRC.

How do you pay and report the levy?

You pay the apprenticeship levy monthly through your existing PAYE process. The levy is reported and paid alongside income tax, National Insurance, and student loan deductions. You don't send a separate payment or form for the levy; it's included in your regular Employer Payment Summary (EPS) submission to HMRC.

Each month, your payroll software calculates the levy amount based on your pay bill, applies the monthly allowance, and includes the net levy in your PAYE liability. You report the levy on your EPS, which is submitted to HMRC after you run payroll. Payment is due by the 22nd day of the following month (or 19th if you pay by post, though most businesses pay electronically).

For example, for the pay period ending 31 January, you submit your EPS by mid-February and pay the combined PAYE liability (including the levy) by 22 February.

What steps do you follow each month in PAYE?

Your monthly PAYE process for the levy involves three simple steps.

1. Run payroll and calculate the levy. Use your payroll software to process employee pay for the month. The software calculates the levy based on your pay bill, applies the monthly allowance, and adds the net levy to your total PAYE liability.
2. Submit your Employer Payment Summary (EPS). After running payroll, submit your EPS to HMRC. The EPS includes the levy amount, along with any statutory payment recoveries or adjustments. Most payroll software submits the EPS automatically as part of Real Time Information (RTI) reporting.
3. Make the combined PAYE payment. Pay your total PAYE liability (income tax, National Insurance, student loans, and the levy) to HMRC by the payment deadline. You can pay by direct debit, bank transfer, or through your HMRC online account.

Keep accurate payroll records each month to support your levy calculations. If HMRC queries your figures, you need to show how you arrived at the pay bill and levy amount. Your payroll software should store this information, but keep payroll and levy records in line with HMRC PAYE record retention requirements.

Employers with modified PAYE schemes

If your business uses a modified PAYE scheme, such as a salary sacrifice arrangement, your pay bill calculation may differ from the standard approach. Salary sacrifice reduces the gross pay figure that appears on your payroll, which can affect the total pay bill you use to calculate your levy.

Salary sacrifice arrangements can affect apprenticeship levy calculations because they may reduce earnings subject to Class 1 National Insurance contributions. Check HMRC guidance or speak with your payroll provider to confirm the correct treatment.

Check your payroll software settings to confirm whether your pay bill figure accounts for this correctly. If you're unsure, review the HMRC guidance on modified PAYE schemes and the apprenticeship levy or speak to your payroll provider before submitting your next Employer Payment Summary.

How do you use apprenticeship levy funds?

Once you pay the levy, HMRC credits the funds to your digital apprenticeship service account. This is an online account where you manage your levy funds, select training providers, add apprentices, and approve payments for training and assessment. You can only use the funds to pay for approved apprenticeship training; you cannot withdraw them as cash or use them for other business expenses.

Levy funds are topped up monthly based on your PAYE payments. The government also provides a top-up to these funds to further incentivise training, adding a 10% contribution so that for every £1 an employer pays, they have access to £1.10 as a training fund. For example, if you pay £1,000 in levy, your account is credited with £1,100. This top-up increases the training budget available to you.

Funds expire on a rolling basis after a set period (currently 24 months in England), so you need to plan your apprenticeship activity to avoid losing money. The expiry rules differ across the UK nations, so check the specific guidance for England, Scotland, Wales, or Northern Ireland.

How do you set up your apprenticeship service account?

1. Create an account. Go to the apprenticeship service website and sign in using your Government Gateway credentials. If you do not have a Government Gateway account, you can create one during the sign-up process.
2. Add your PAYE details. Link your PAYE schemes to the account so HMRC can credit your levy payments. You need your PAYE reference and Accounts Office reference, which you can find on your PAYE correspondence or payroll software.
3. Link a training provider. Search for approved training providers on the apprenticeship service and invite them to connect to your account. Once they accept, you can work with them to set up apprenticeships and agree on training costs.
4. Add apprentices. Enter details of each apprentice, including their name, date of birth, and the apprenticeship standard or framework they will follow. The training provider helps you complete this step.
5. Approve payments. Review and approve payment requests from your training provider each month. Payments are deducted from your levy funds automatically, and you can track spending in your account dashboard.

You can manage multiple apprentices, providers, and PAYE schemes from one account. Set up user permissions if you want your finance team, HR, or an external advisor to access the account on your behalf.

What can you pay for and what is out of scope?

You can pay for the following from your levy account.

• Approved apprenticeship training: Courses delivered by registered training providers that lead to a recognised apprenticeship standard or framework.
• End-point assessment: The final assessment that apprentices take to demonstrate they have met the standard. Assessment organisations are separate from training providers, and you pay for both from your levy account.
• Prior learning assessment: If an apprentice has relevant experience or qualifications, you can pay for an assessment to recognise prior learning and shorten the apprenticeship duration.

The following costs are out of scope and cannot be paid from your levy account.

• Wages, salaries, or other employee costs
• Travel, accommodation, or subsistence for apprentices
• Managerial costs or overheads
• Training that is not part of an approved apprenticeship standard
• Recruitment or advertising costs

Keep clear records of all training and assessment costs. Your training provider invoices you through the apprenticeship service, and payments are tracked automatically, making it easier to manage your budget and demonstrate compliance if HMRC reviews your account.

Do funds expire and how do you avoid losing them?

In England, levy funds expire 24 months after they enter your account. The expiry works on a rolling monthly basis, so funds that arrived in January 2024 will have expired in January 2026 if not spent. The 10% government top-up expires at the same time as the underlying levy payment.

To avoid losing funds, plan your apprenticeship activity in advance using the following approaches.

• Map your levy inflows. Track how much levy you pay each month and when those funds will expire. Use your apprenticeship service account dashboard to monitor balances and expiry dates.
• Time apprenticeship starts. Schedule apprentice recruitment and training starts to align with your available funds. Starting apprenticeships early in the financial year gives you more time to spend the funds before they expire.
• Pace cohorts. If you have multiple apprentices, stagger their start dates to spread costs over several months and avoid large spikes in spending that exceed your available balance.
• Transfer unused funds. If you cannot spend all your funds, consider transferring a portion to another employer (see below). Transfers help you avoid losing money and support other businesses or supply chain partners.

In Scotland, Wales, and Northern Ireland, the levy is not ring-fenced for individual employers, so the concept of expiry does not apply in the same way. However, you still need to engage with training providers to access apprenticeship places, and government funding is subject to annual budget allocations.

Can you transfer unused levy funds?

In England, you can transfer up to 50% of your annual levy funds to other employers through the apprenticeship service. Transfers let you support businesses in your supply chain, local area, or sector that do not pay the levy or do not have enough funds for their apprenticeship needs.

Transfers are voluntary and must be agreed between you and the receiving employer. You cannot sell or trade levy funds, and you can only transfer levy funds to other employers – including connected companies – provided transfer rules are met.. The transfer is a one-way gift to support apprenticeship training.

To set up a transfer, follow these steps.

1. Log in to your apprenticeship service account and navigate to the transfers section.
2. Specify how much you want to transfer and which employers can receive the funds.
3. The receiving employer accepts the transfer in their own apprenticeship service account and uses the funds to pay their training provider.

What if you do not pay the levy?

If your annual pay bill is below £3 million, you do not pay the apprenticeship levy, but you can still access government-funded apprenticeship training. The funding model differs depending on where you operate in the UK.

Non-levy funding in England

For smaller, non-levy paying businesses, the government provides significant financial support, requiring employers to make a 5% contribution while the government will pay the remaining 95% of training costs up to the funding cap. For example, if an apprenticeship costs £10,000, the government pays £9,500 and you pay £500.

You work directly with a registered training provider to set up the apprenticeship. The provider claims the government funding, and you pay your 5% share either directly to the provider or through an invoice arrangement. You do not need an apprenticeship service account unless you choose to set one up to manage payments and track progress.

Additional support is available for smaller employers.

• Employers with fewer than 50 employees who hire an apprentice aged 16–21 (or aged 22–24 with an education, health and care plan) receive 100% government funding with no co-investment required.
• Incentive payments may be available for hiring young apprentices or apprentices from underrepresented groups. Check GOV.UK for current incentive schemes and eligibility criteria.

Non-levy funding in Scotland, Wales, and Northern Ireland

In Scotland, Wales, and Northern Ireland, apprenticeship funding is managed by the respective governments, and employers do not use the digital apprenticeship service. Instead, you work with approved training providers who receive government funding to deliver apprenticeships. The arrangements vary by nation, as set out below.

• Scotland: The Scottish Government funds training providers directly. Employers engage with providers to arrange apprenticeships, and there is no co-investment requirement for most employers. Some employers may be asked to contribute towards training costs depending on the apprenticeship level and the employer's size.
• Wales: The Welsh Government funds apprenticeships through training providers. Employers collaborate with providers to access apprenticeship places, and funding covers the full cost of training for eligible employers.
• Northern Ireland: The Department for the Economy funds apprenticeships through training providers. Employers work with providers to set up apprenticeships, and funding is available to cover training costs.

Contact your local training provider or government apprenticeship service to find out what support is available and how to access it.

How do you track the levy and training costs in your accounts?

Tracking the apprenticeship levy and related training costs in your accounting system helps you manage cash flow, reconcile HMRC payments, and forecast future spending. Setting up dedicated accounts, recording monthly accruals, capturing training invoices, and monitoring budgets ensures you use your levy funds effectively and avoid losing money through expiry.

How do you set up accounts and monthly journals?

Start by creating separate accounts in your chart of accounts to record the levy and training costs. You'll need the following two accounts.

• Expense account: "Apprenticeship Levy" under operating expenses. This shows the cost in your profit and loss statement.
• Liability account: "Apprenticeship Levy Payable" under current liabilities.

Each month, after you run payroll, record a journal entry to recognise the levy.

Example journal:

• Debit: Apprenticeship Levy (expense) £833.33
• Credit: Apprenticeship Levy Payable (liability) £833.33

This entry records the levy as an expense for the month and creates a liability for the amount due to HMRC. When you pay your combined PAYE liability (including the levy) to HMRC, record the payment against the liability account to clear the balance.

Payment entry:

• Debit: Apprenticeship Levy Payable (liability) £833.33
• Credit: Bank account £833.33

If your payroll software integrates with your accounting system, it may post the levy automatically as part of the payroll journal. Check your integration settings and adjust the chart of accounts mapping to ensure the levy is recorded correctly.

For training costs, create an expense account called "Apprenticeship Training" to record payments to training providers. When you receive an invoice from a training provider, enter it as a bill, code it to the training account, and pay it when due. This keeps training costs separate from the levy charge and makes it easier to track spending against your available levy funds.

How do you capture documents and monitor budgets?

Capturing and storing training invoices, HMRC payment confirmations, and apprenticeship service account statements in one place reduces manual data entry and ensures you have a complete audit trail. Document management tools that integrate with your accounting software can extract key details from documents and create draft bills automatically.

Set up a budget to track your levy payments and training costs against your plan. For example, if you expect to pay £10,000 in levy over the year and spend £15,000 on training (including the 10% top-up), create a budget that shows these figures by month. Use budget variance reports to compare actual spending to your plan and identify any months where you are under or overspending.

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FAQs on the apprenticeship levy

Here are answers to some common questions employers ask about the apprenticeship levy.

How often do apprenticeship levy rules change?

The government reviews levy rules regularly, so you should check HMRC and Department for Education updates at least once a year.

Can you stop paying the levy if your pay bill falls below £3 million?

If your annual pay bill drops below £3 million, you may stop being a levy payer, but you should confirm the timing and impact with HMRC and adjust your PAYE calculations.

What happens to apprenticeships you've already started if the rules change?

Existing apprenticeship agreements usually continue under the rules in place when they started, but funding caps and future starts may change, so review new guidance before taking on more apprentices.