If your organisation has an annual pay bill above £3 million, you have been paying the Apprenticeship Levy every month since April 2017.
But here is the question worth asking: how many people in your senior team could explain exactly how the levy works, what it funds, and what happens to the balance you have not yet spent?
For many organisations, including well-managed, commercially sophisticated businesses, the Apprenticeship Levy remains one of the least understood deductions on the payroll. It goes out through PAYE. It accumulates somewhere. And for a significant proportion of large employers, it expires, unused, at the 24-month mark, returning to government rather than building anything for the workforce.
This guide is the plain-English explanation every employer deserves. What the Apprenticeship Levy is. Who pays it. How to calculate it. What you can and cannot spend it on. And how the landscape is changing under the incoming Growth & Skills Levy reforms.
What Is the Apprenticeship Levy?
The Apprenticeship Levy is a statutory contribution paid by large UK employers to fund the training costs of apprenticeships. It was introduced in April 2017 by the UK government with a clear objective: increase both the quantity and quality of apprenticeship training in England, funded by the employers who benefit most from a skilled workforce.
The mechanism is straightforward. Levy-paying employers contribute a percentage of their pay bill into a digital account each month. They then draw down from that account to pay for approved apprenticeship training programmes delivered by registered training providers. The government manages the system through the apprenticeship service, an online platform where employers access their account, select providers, and manage their programme funding.
One important point for multi-site or multi-entity organisations: the Apprenticeship Levy applies to pay bills in England. Scotland, Wales, and Northern Ireland each operate their own skills funding systems. Levy contributions are collected UK-wide through HMRC, but the apprenticeship service digital account, and the ability to spend those funds, applies to English-based activity.
Who Pays the Apprenticeship Levy?
The levy applies to any employer, public sector, private sector, or third sector, with an annual pay bill above £3 million.
This threshold captures a wide range of organisations: NHS trusts, local authorities, universities, large retailers, financial services firms, manufacturers, housing associations, and professional services organisations. If your annual wage bill crosses the £3 million mark, you are a levy-paying employer regardless of your sector or ownership structure.
It is worth being clear on what counts as the pay bill: the total amount your organisation pays in earnings that are subject to Class 1 secondary (employer) National Insurance contributions. That includes salaries, bonuses, and taxable benefits, not just base wages. If you are part of a group of connected companies, the £15,000 annual allowance (more on this below) is shared across the group rather than being available to each entity separately.
Smaller employers, those with a pay bill under £3 million, do not contribute to the levy but can still access apprenticeship funding for employers through the government’s co-investment scheme: the government covers 95% of apprenticeship training costs, with the employer contributing the remaining 5%.
How Is the Apprenticeship Levy Calculated?
The calculation follows a consistent formula:
(Annual pay bill × 0.5%) − £15,000 allowance = Annual levy contribution
The £15,000 allowance effectively means the levy only applies to pay bills above £3 million (since 0.5% of £3 million equals exactly £15,000, which is cancelled out by the allowance). In practice, the contribution scales directly with pay bill size:
- Pay bill £5 million: (£25,000) − £15,000 = £10,000 per year
- Pay bill £10 million: (£50,000) − £15,000 = £35,000 per year
- Pay bill £20 million: (£100,000) − £15,000 = £85,000 per year
- Pay bill £50 million: (£250,000) − £15,000 = £235,000 per year
Annual contributions are divided across 12 months and paid through PAYE alongside employer National Insurance and income tax. There is no separate registration process, if you are liable, HMRC calculates and collects automatically.
One additional benefit that many employers overlook: the government applies a 10% top-up to every pound credited to your digital account. So every £1 you contribute becomes £1.10 available to spend on approved training. For a large employer contributing £100,000 per year, that is an additional £10,000 in available training funds.
How the Digital Apprenticeship Account Works
Your levy contributions accumulate in a digital apprenticeship service account, an online platform managed by the Department for Education. From this account you can:
- Browse and select approved apprenticeship training providers
- Commit funds to specific apprenticeship programmes for named employees
- Monitor your account balance and monthly contributions
- Set up levy transfers to other employers (see below)
- Track apprentices and programmes in progress
The account is the employer’s control panel for levy spending. It is also where most employers’ levy strategy, or lack of one, becomes visible.
The 24-month expiry rule is the single most important operational detail every levy-paying employer needs to understand. Any funds credited to your account that have not been committed to an apprenticeship programme within 24 months are automatically returned to government. They cannot be recovered.
This is not a theoretical risk. It is the mechanism behind the estimated £3.3 billion in unspent Apprenticeship Levy funds that was returned to government between 2017 and 2022. Employers who do not have a deliberate, rolling training strategy in place consistently lose contributions to the 24-month clock.
What Can You Spend the Apprenticeship Levy On?
Under the current Apprenticeship Levy rules, funds can only be spent on training and end-point assessment for approved apprenticeship standards, structured qualifications that combine work-based learning with off-the-job training delivered by a registered provider.
The range of approved standards is broad, spanning from Level 2 (equivalent to GCSEs) through to Level 7 (equivalent to a master’s degree). Some examples relevant to large employers include:
- Chartered Manager Degree Apprenticeship (Level 6) – for those developing into management roles
- Senior Leader Master’s Degree Apprenticeship (Level 7) – an MBA-equivalent programme fundable entirely through the levy, directly relevant to leadership development in senior teams
- Data Analyst and Data Scientist Apprenticeships – for organisations building digital and analytical capability
- HR Consultant/Partner (Level 5) and HR Support (Level 3) – for HR function development
- Accountancy/Taxation Professional (Level 7) – for finance team development
What the Apprenticeship Levy cannot fund is equally important to understand:
- Employee wages (including apprentice wages)
- Travel or accommodation costs
- Any training that is not delivered by an ESFA-registered training provider against an approved standard
- Bespoke in-house training programmes, even where they develop genuine skills
This is where the core frustration with the Apprenticeship Levy lies for many employers. Upskilling the workforce in AI and emerging technology, critical for most organisations in 2026, is not straightforwardly fundable through the existing levy structure. The same applies to many specialist management development programmes and sector-specific technical training that doesn’t map to an approved standard.
The Levy Transfer Allowance
Levy-paying employers can transfer a proportion of their annual funds to other employers, typically smaller organisations in their supply chain, sector, or community, who can then use those funds to pay for apprenticeship training.
The transfer limit allows levy-paying employers to transfer up to 25% of their annual levy funds. The receiving employer does not need to be a levy-payer themselves, the transferred funds are credited to their account and can be spent on approved apprenticeship standards exactly as they would spend their own levy.
The transfer mechanism is particularly valuable for:
- Large employers who consistently have more levy than they can spend on their own workforce
- Organisations with a strong supply chain development agenda
- Employers with social responsibility commitments to local skills and employment
Under the incoming Growth & Skills Levy reforms, transfer provisions are expected to be reviewed alongside the broader changes to what levy funds can be used for.
The Apprenticeship Levy Is Changing
The Apprenticeship Levy in its current form is transitioning into the Growth & Skills Levy, a reformed framework introduced by the UK government under the Skills England programme.
The financial structure remains the same: the same threshold, the same rate, the same digital account mechanism. What is changing is the scope of what levy funds can be used for. Skills Bootcamps, Foundation Apprenticeships, and a broader range of workforce training, including leadership development and AI training for businesses, are becoming fundable alongside traditional apprenticeships.
For employers frustrated by years of being unable to use their levy contributions effectively, the Growth & Skills Levy reforms represent a significant improvement. For employers who have been making good use of their levy, the incoming changes open additional options rather than removing existing ones.
We have covered the Growth & Skills Levy and what it means for employers in detail in our companion guide: What Is the Growth & Skills Levy – and What Does It Mean for Your Organisation?
How Think Helps Employers Make the Most of the Apprenticeship Levy
Think works with employers across Liverpool, Wirral, and the wider North West, and nationally, to ensure their Apprenticeship Levy contributions generate genuine workforce value rather than expiring unused.
We start with a levy audit: a clear picture of what your organisation contributes, what has been spent, what is at risk of expiry, and where the genuine training opportunities are within your workforce. From there, we map your priorities to fundable programmes, from leadership development at senior level to skills bootcamp approaches for building AI capability in your teams.
Whether you are looking for AI training in Liverpool or Wirral, leadership development programmes that use your levy effectively, or structured workforce development in Liverpool and Wirral across your whole organisation, Think designs and delivers programmes that align with both the current Apprenticeship Levy rules and the incoming Growth & Skills Levy framework.
Speak to Think today about how your Apprenticeship Levy can work harder for your organisation.
Frequently Asked Questions
What is the Apprenticeship Levy?
The Apprenticeship Levy is a statutory contribution paid by UK employers with an annual pay bill above £3 million. Introduced in April 2017, it requires qualifying employers to contribute 0.5% of their pay bill (minus a £15,000 annual allowance) into a digital account, from which they can fund approved apprenticeship training programmes for their employees.
Who has to pay the Apprenticeship Levy?
All employers, public sector, private sector, and third sector, with an annual pay bill above £3 million are required to pay the Apprenticeship Levy. The levy is collected monthly through PAYE by HMRC. Smaller employers with a pay bill under £3 million do not pay the levy but can access co-investment funding (95% government, 5% employer) to fund apprenticeships.
How is the Apprenticeship Levy calculated?
The Apprenticeship Levy is calculated at 0.5% of your total annual pay bill, minus a £15,000 annual allowance. For example, an employer with a £10 million pay bill contributes £35,000 per year (£50,000 at 0.5%, minus the £15,000 allowance). Payments are made monthly through PAYE and credited to a digital apprenticeship service account, where the government adds a 10% top-up.
What can the Apprenticeship Levy be used for?
Under the current rules, the Apprenticeship Levy can only be used to fund training and end-point assessment for approved apprenticeship standards delivered by a registered training provider. This covers a wide range of qualifications from Level 2 to Level 7, including degree-level and MBA-equivalent Senior Leader programmes. It cannot be used for wages, travel, accommodation, or non-apprenticeship training. Under the incoming Growth & Skills Levy reforms, the range of fundable training is expanding.
What happens to unused Apprenticeship Levy funds?
Any levy funds that remain uncommitted in your digital account 24 months after being credited are automatically returned to government and cannot be recovered. This is the single most common cause of wasted levy contributions, and the primary driver behind the estimated £3.3 billion in unspent levy funds returned to government between 2017 and 2022. A rolling training plan with a specialist provider is the most effective way to prevent funds expiring.
How is the Apprenticeship Levy changing?
The Apprenticeship Levy is transitioning into the Growth & Skills Levy under the UK government’s Skills England reforms. The financial structure, the threshold, the rate, and the digital account mechanism, remains the same. What is changing is the scope of eligible training: Skills Bootcamps, Foundation Apprenticeships, and a broader range of workforce development programmes are becoming fundable alongside traditional apprenticeships. For a full overview of the changes, see our guide: What Is the Growth & Skills Levy?
Conclusion
The Apprenticeship Levy is not a tax in the sense that the money disappears with nothing in return. It is, or it should be, a workforce investment fund: ring-fenced, accessible, and topped up by government. The problem has never been the levy itself. The problem has been the gap between what it can fund and what employers actually need.
That gap is narrowing under the Growth & Skills Levy reforms. But whether you are working within the current framework or planning ahead for the incoming changes, the same principle applies: unplanned levy funds expire. A deliberate strategy doesn’t.
Think works with employers in Liverpool, Wirral, and across the UK to build levy strategies that deliver real workforce development, from leadership development at board level to AI training for your teams and structured upskilling programmes across the organisation.
Get in touch with Think to discuss your Apprenticeship Levy strategy.
