Apprenticeship Levy Guide

You are partway through reviewing April’s payroll summary when a line item stops you: “Apprenticeship Levy.” Your finance director flagged it last quarter.

Your HR director says the funds are sitting in an account somewhere but has not worked out what to do with them.

Your training manager thinks you need HMRC’s permission to touch them. In practice, the levy is more straightforward than the confusion around it suggests.

But only if you understand the mechanics before the 24-month expiry clock starts running.

What is the Apprenticeship Levy and who has to pay it?

The Apprenticeship Levy is a mandatory payroll charge introduced in April 2017. Any UK employer with an annual pay bill above 3 million pounds must pay it.

That threshold applies to your total pay bill: wages, bonuses, and commissions subject to employer Class 1 secondary National Insurance contributions.

It does not include payments to employees under 16, or earnings exempt from UK National Insurance.

The rate is 0.5% of your annual pay bill, reduced by a levy allowance of 15,000 pounds per year. That allowance means an employer with a pay bill of exactly 3 million pounds pays nothing.

An employer with a 5 million pound pay bill pays 0.5% on 5 million minus 15,000: roughly 10,000 pounds per year, or about 833 pounds per month.

Connected companies share a single 15,000 pound allowance.

If your organisation is part of a group, connected to other companies or charities for Employment Allowance purposes, your combined pay bill determines liability and the allowance must be divided between connected entities.

A multi-subsidiary group with a combined pay bill of 12 million pounds shares one 15,000 pound reduction.

They cannot each claim it separately. This catches a number of multi-entity employers who assumed each PAYE scheme carried its own full allowance.

How does Apprenticeship Levy calculation and payment work?

You report and pay monthly through your Employer Payment Summary (EPS), the same PAYE submission your payroll software sends to HMRC each month. There is no separate return, no extra registration.

It runs through the payroll infrastructure you already use.

The monthly calculation is cumulative. Each month you total your year-to-date pay bill, apply year-to-date allowance (one-twelfth of 15,000 pounds per month elapsed), subtract levy paid to date, and pay the balance.

This cumulative method smooths seasonality. If bonuses land in one quarter, the levy catches up without penalising you for an uneven payroll run.

We verified this against HMRC’s current guidance, updated April 2026.

The mechanics have not changed since 2017, though the connected-companies allowance-sharing rule continues to catch multi-entity employers who have not done the group-level calculation.

Payment reaches HMRC as part of your normal monthly PAYE settlement. Your payroll software should handle the EPS field automatically.

If it does not, that is a gap worth raising with your provider before the next submission date.

Where do your levy payments actually go?

Payments are not absorbed into a general HMRC pot. Each month, the levy you declare is credited to your Apprenticeship Service account, an online platform operated by the Department for Education.

The amount credited is calculated as: levy declared to HMRC, multiplied by the proportion of your pay bill attributable to employees living in England, plus a 10% government top-up on that England-only figure.

That top-up is real money. An employer paying 60,000 pounds in levy annually with an entirely English workforce receives an additional 6,000 pounds credited to their account.

If 80% of the pay bill covers England-based staff, the top-up applies to 80% of the levy.

Employers with significant Scottish, Welsh, or Northern Irish workforces see proportionally lower credits because the devolved nations fund their own apprenticeship systems separately.

Your account balance is not cash you can withdraw. It exists inside the Apprenticeship Service platform and can only be used for approved training and end-point assessment.

You cannot offset it against other taxes, transfer it to your bank account, or use it for general staff development costs.

What can levy funds pay for, and what they cannot?

Funds in your Apprenticeship Service account pay for apprenticeship training and end-point assessment delivered by providers on the Register of Apprenticeship Training Providers.

You choose from approved apprenticeship standards: currently over 670 standards covering roles from software developer to HR consultant to senior leader.

Costs the levy covers:

• Training fees charged by your registered training provider, up to the funding band maximum for the chosen standard
• End-point assessment fees charged by an approved end-point assessment organisation

Costs the levy does not cover:

• Your apprentice’s salary; you pay this from your normal wage budget
• Travel and subsistence
• Uniforms or equipment
• Recruitment fees
• Training that does not follow an approved apprenticeship standard
• Costs above the funding band maximum for the chosen standard; you pay any excess from your own budget

The funding band maximum varies by standard. A level 3 customer service specialist standard carries a 6,000 pound cap. A level 7 senior leader standard can run to 14,000 pounds.

If your chosen provider charges above the cap, you cover the difference.

This is where accumulated funds often go unspent. Employers discover they cannot use levy money for the short courses, conference attendance, or bespoke development programmes that dominate most L&D budgets.

Apprenticeship standards are structured, regulated, and time-bound, typically running 12 to 36 months. That does not suit every training need. It is not a design flaw; it is intentional.

But it means your spend strategy needs to align with the framework, not work around it.

What happens if you do not spend your funds?

Funds credited to your Apprenticeship Service account expire after 24 months. If levy entered your account in May 2024, it expires in May 2026. HMRC and DfE do not send a warning.

The funds disappear from your balance on a rolling 24-month basis.

Employers with large balances and limited apprenticeship pipelines face a genuine operational decision: build a structured programme fast enough to absorb the funds, or transfer up to 50% of your unused annual funds to other employers.

The transfer route, available through the Apprenticeship Service platform, lets you direct funds to your supply chain, subsidiaries, or partner organisations with active apprenticeship programmes.

As of May 2024, the transfer cap increased from 25% to 50% of unused annual funds, which meaningfully expands the options for employers sitting on dormant balances.

We think the 24-month expiry is one of the most underestimated operational risks in large-payroll HR. Finance typically flags the levy as a cost line.

They rarely flag the forfeiture risk when no apprenticeship programme exists to absorb the credit side.

How does the levy work for connected companies and multi-entity groups?

If your business operates through multiple legal entities, the connected companies rules require you to aggregate pay bills across all connected entities.

Connection follows the same definition as Employment Allowance: broadly, companies under common control.

The single 15,000 pound allowance must be divided between entities. The allocation is yours to determine, but the combined allowance cannot exceed 15,000 pounds.

Each entity maintains its own PAYE submission and its own Apprenticeship Service account, but the allowance constraint applies across the group.

For a holding company with four subsidiaries and a combined pay bill of 20 million pounds, each entity calculates its own levy contribution after the group-level allowance is shared out.

Each entity also maintains its own account.

A subsidiary with a smaller pay bill might accumulate levy faster than it can spend it, while a larger entity with an active apprenticeship pipeline depletes its balance regularly.

Mapping your spend plan to entity structure early, rather than treating it as a group-level abstraction, avoids this imbalance.

What about employers who do not pay the levy?

Smaller employers with a pay bill below 3 million pounds use a co-investment model rather than a levy account.

For apprenticeships starting on or after 1 April 2019, the employer contributes 5% of training costs and the government funds the remaining 95%, up to the relevant funding band maximum.

You still need an Apprenticeship Service account to access this funding. You reserve funds in the service before the apprenticeship starts, then the government contribution flows directly to your training provider. There is no levy deduction from payroll.

Your only cost is the 5% co-investment and any amount above the funding band maximum.

In certain circumstances, the government will fully fund apprenticeship training costs up to the band maximum. The 2026 to 2027 funding rules set out the eligibility criteria in detail.

What should you do next with your Apprenticeship Levy balance?

If you are newly above the 3 million pound threshold, confirm immediately that your payroll software is correctly calculating and reporting the levy through EPS each month. Errors compound through the cumulative method.

A miscalculation in April grows with every monthly submission.

If you are an established levy payer with an unspent balance, log into your Apprenticeship Service account and check the credit dates on your oldest funds.

If any are approaching the 24-month mark, they will be forfeited without notice.

Map your remaining balance to apprenticeship standards your organisation could realistically deploy. The DfE’s find apprenticeship training tool lets you filter by job role, level, and location.

If internal demand is limited, the 50% transfer route to supply chain partners is worth exploring before the expiry date passes.

The levy is a payroll cost you cannot avoid once you cross the threshold.

Whether it becomes a workforce development asset or a recurring write-off depends on whether your HR and finance teams have a spend plan before the 24-month clock runs out.